Alabama House panel debates cap on title loan interest rates

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Alabama title loan companies could see a 36 percent cap on the interest rates they’re allowed to charge consumers under legislation under consideration in the House.

The House financial services committee heard public arguments Wednesday about tightening regulations of subprime loans that use cars and other assets as collateral. House Bill 400 requires title lending companies to be licensed by the state and adhere to state-level restrictions on the charges, interest, and fees associated with title loans.

The Federal Deposit Insurance Corporation estimates that 1.1 million households used auto title loans in 2013. Alabama lenders are allowed to charge 25 percent per month for an auto title loan, translating to as much as 300 percent on a yearly basis.

“We’re talking about an industry that doubles its money three times on an annual basis,” bill sponsor Rep. Rod Scott said. “We know that’s not appropriate. From the consumer’s perspective, that’s usury.”

Scott said he brought the bill because of concern over what he describs as unfair practices and predatory lending to Alabama’s poorest households. The result, he said, is that people have to ask family, churches or nonprofit groups for help to pay off the loans.

“You can’t borrow your way out of debt, especially when the interest rates are so onerous,” Scott said.

Osjha Domenicone, head of government affairs for title loan company Select Management Resources, said her company has had only two complaints in five years.

“Other states that have passed price restrictions like the ones in this bill have seen an increase in complaints because their citizens are left with nothing but unregulated, unaccountable online lenders,” she said. “I assure you, a 36 percent cap does eliminate the industry and this access to credit … I have a difficult time understanding why my customers and employees should suffer over two complaints in five years.”

Stephen Stetson from Alabama ARISE argued that in the 25 states without a title loan presence, consumers can still access credit through traditional banking.

Several members expressed concern over imposing regulation at the state level, when the federal Consumer Financial Protection Bureau is expected to take action on payday and title lending this year.

“Anything we do is just going to get overturned at the federal level,” Rep. Mike Hill said.

The panel declined to vote on House Bill 400 Wednesday. Stetson said that with just seven days left in the regular session, that decision would mean another year of predatory lending for Alabama consumers.

“We’re looking at a long off-season where more people are going to get their cars repossessed or get trapped in more loans,” Stetson said. “It’s a shame that 67 bill co-sponsors – which is enough (votes) to get it passed on the House floor – wasn’t enough to get this bill through committee.”

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