Lawmakers aim to change payday lending loan laws


Lawmakers are expected to take up controversial regulation of the payday lending industry next week. A House panel is expected to vote on a proposal to impose three-month repayment guidelines on all payday loans.

Sponsored by Rep. Danny Garrett, House Bill 531 also states that lenders can charge a maximum of 17.5 percent of the loan amount. An Auburn University study found that in Alabama, lenders had been charging as much as $17.50 for every $100 borrowed, an annualized interest of about 450 percent.

Sen. Garrett’s bill is one of several recent efforts to impose statewide limits on the payday lending industry. Last week, the Alabama Supreme Court ruled that the state Banking Department can establish a payday loan database to enforce an existing $500 limit on how much people can borrow at one time from the short-term lenders. In addition, Sen. Arthur Orr has introduced a bill that would limit finance charges to no more than 45 percent, give borrowers at least six months to repay their loans, and force lenders to disclose a total annual percentage rate.

Tighter lending regulation comes at a time when Alabama households have been identified among the most financially unstable in the country. A new money map  from the financial website ranked states using available data on financial habits, performance on financial literacy quizzes, and state laws on offering financial education in high school.

Those three factors paint a grim picture for the average Alabama household:

  • The average Alabama household spends about 10 percent of its income to cover debt payments. In top-ranked state Utah, only 8 percent of family income goes toward debt.
  • While about 66 percent of American households have a fund for emergencies, only 38 percent in Alabama have emergency savings.
  • About 42 percent of Alabama households have at least one credit account in collections; the national average is 7 to 12 percent.