I can’t think of many industries that do as much damage to ordinary folks who have to borrow money than the payday and title lenders that prey on the most vulnerable citizens, trapping them in a nightmarish cycle of debt when they already face financial distress. These predatory lenders typically operate in low-income neighborhoods and lure unsuspecting borrowers with advertisements offering easy access to cash. They target customers who are down on their luck and who have little ability to pay off their loans, but who trust, wrongly, that the lenders are subject to regulations that protect consumers from usurious rates and unfair practices. Alabama is one of the worst offenders when it comes to protecting the payday and title lenders.
The predatory lenders in Alabama have no incentive to act as a responsible lender would. That’s because of our legislature’s failure to pass laws regulating them. The profit model of these predatory lenders is based on extending irresponsible loans that consumers cannot possibly repay on time. Our elected officials must step in to ensure that these lenders can no longer drain needed resources from our most vulnerable communities. Alabama Arise has made some solid and well-reasoned recommendations that should serve as a guide to lawmakers in establishing much-needed protections for small-dollar borrowers. I will set those recommendations, which I agree with, out below:
• Annual interest rate should be limited to 36 percent;
• A minimum repayment period of 90 days should be set;
• The number of loans per year must be limited;
• There must be a meaningful assessment of a borrower’s ability to repay;
• A workable centralized database must be created;
• Incentive and commission payments for employees – based on outstanding loan amounts – must be prohibited;
• Direct access to bank accounts and social security funds must be prohibited;
• Lender buyouts of unpaid title loans must be prohibited;
• Lenders must be required to return surplus obtained in sale of repossessed vehicles;
• Incentives must be created for savings and small-loan products; and
• Financial education and credit counseling must be required.
Policymakers have a duty to regulate both payday and title loans and to protect consumers from these predatory lenders. Without adequate regulation, Alabama lenders, many of which are engaged in both payday and title lending, will simply push their customers to take out whichever loan is more favorable to the lender under the new regulatory structure. The Alabama Legislature must take a strong stand on protecting vulnerable communities by addressing both types of predatory loans. Unfortunately, our Legislature has a history of protecting predatory lenders and it’s time for that protection to stop. Hopefully, the next group of legislators will start protecting the public in this arena.
Source: Alabama Arise
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