The Alabama Senate passed a bill Wednesday to extend the timeframe for repaying loans from so-called “payday” lenders to six months.
Pressure to quickly repay payday loans – often at interest rates of 20 percent or higher, compounded over time – is a serious financial problem for many low-income Alabamians.
Republican Sen. Bill Orr — who is sponsoring SB 91 — says he wants to make the state’s payday loan regime less “punitive.”
Current law allows lenders to charge interest rates of 456 percent per year. Orr’s bill caps maximum annual interest at 180 percent.
Democrats and advocates on behalf of low-income workers have long criticized the payday loan industry, but support for reform among Republicans is something relatively novel.
According to the Montgomery-based Arise Citizens’ Policy Project, high payday loans rates not only hurt poor borrowers, but the economy at large.
“Every dollar spent repaying payday loan interest takes nearly $2 out of the overall economy through reduced consumer spending and increased bankruptcies, according to a recent study by the Insight Center for Community Economic Development. The study calculated that payday lending cost Alabama $47 million – and 697 jobs – in 2011,” reads a policy memo in support of Orr’s bill.
The legislation won approval by a 28-1 vote, and now moves to the House. If the bill meets with their approval, it would move on to the desk of Gov. Robert Bentley for his signature, assuming he isn’t impeached.
The Colorado state Legislature passed similar legislation in 2010. A study by the Pew Charitable Trusts found that the number of payday stores in Colorado shrunk by half after the change.
Information from the Associated Press was used in this report.