A new state database shows that Alabamians are borrowing millions of dollars every day from payday lending stores.
The database created by the Alabama Department of Banking found that people 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.
The state created the database to enforce an existing law that limits people to borrowing no more than $500 at a time.
Payday loans are loans lasting between 14 and 30 days. Critics say the transactions, with interest rates as high as 456 percent, trap borrowers in a debt cycle. Shay Farley, a lawyer with Alabama Appleseed, called the numbers “shocking.”
The industry has argued the interest reflects the risk involved and that they provide a service to a traditionally underserved community. An industry representative said lenders close as states push additional regulation.
Alabama has about 900 payday lenders. Cities around the state, including Montgomery, have passed or considered moratoriums on payday and title loan lending.
The central database had long been sought by advocates of payday reform. A 2003 law that first regulated the industry allowed lenders to use a variety of third-party databases, making it all but impossible to enforce the $500 limit. The Banking Department moved to establish the database after the industry torpedoed a similar bill in the Legislature in 2013, despite wide bipartisan support.
The industry sued to block the database that September. Montgomery Circuit Judge Truman Hobbs dismissed the lawsuit last year. The Alabama Supreme Court upheld Hobbs’ decision in the spring.
The database only covers payday lending. Title loans, where interest rates can climb as a high as 300 percent, are governed under a separate act.
Reform advocates have pushed to cap interest rates on payday and title loans at 36 percent. While attracting dozens of cosponsors — frequently enough to get the bills passed — the legislation has often been bottled up in committee. House and Senate leadership, while supportive of a database, have in the past said they want to see what that database would reveal before considering additional legislation.
Republished with permission of the Associated Press.