Alabama House committee passes weakened payday lending reform

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The House Financial Services Committee voted Wednesday to approve a version of the payday lending reform bill already passed by the Alabama Senate, but neither side of the debate is particularly happy with the outcome.

Weaker than the original legislation, the substitute bill offered during the committee meeting Wednesday restricts payday lenders to making loans at 15 percent for minimum terms of 28 days, which cuts the APR of such loans significantly, but not as much as reformers had hoped.

The move is seen as a compromise, and the original bill’s sponsor Danny Garrett, a Republican of Trussville, said it means “[w]e’re moving to the point where we’ll have reform this year.”

Besides the increase in the amount of interest allowed, one of the biggest issues reformers have with the new bill is the maintenance of the inability to pay off the loans in installments, one of the features they say keep low-income borrowers trapped in a cycle of debt.

In a public hearing on the previous Wednesday, a member of the payday lending industry said the original bill would be an “extinction event” for the entire sector.

database created by the Alabama Department of Banking found Alabamians took out 462,209 loans over a 10-week period. A total of $146 million was borrowed, or an average of about $14 million each week.

A coalition of activists from across the state have fought for years to bring reform to the table. The Alliance for Responsible Lending in Alabama (ARLA) has members from the Arise Citizens’ Policy Project, Alabama Appleseed, the Alabama State Conference of the NAACP, the Alabama Citizens’ Action Program, the Southern Poverty Law Center, and the Federation of Republican Women.

While opponents of reform say such loans are sometimes necessary to help low-income families through tough times, ARLA policy analyst Stephen Stetson wrote in an op-ed last month that what can appear to be a helping hand for those in need can be an “anchor” holding them in a cycle of poverty.

“We all want a world where people can get the kinds of credit they need. But that requires putting some brakes on a system that all too often acts as an engine for poverty, handing out extremely high-cost loans to desperate folks who may treat them as a lifeline. Too often, those ‘lifelines’ instead end up as anchors, dragging people into financial quicksand.”

But regardless of the compromise, the changes made to the bill may mean reform is dead in the water this year, as it will have to be re-passed by the Senate, and this time under the body’s unanimous consent rules, with just a few days left in the Regular Session.

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