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 Debt.com 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.
State Supreme Court rules against payday lenders
The Alabama Supreme Court has 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. The decision was a victory for advocates who have sought restrictions on the loans, but they say it does not go far enough in limiting an industry they said preys upon the financially vulnerable. A payday loan store owner argued that the database is unworkable because much of the industry is online and untouched by state regulation. Payday lenders sued Alabama’s Banking Department in 2013 to block creation of the system. Justices upheld a Montgomery’s judge’s ruling that the state was within its rights to establish the database. “It was great. Hallelujah,” said Rep. Patricia Todd, a Birmingham Democrat. Todd was sponsoring legislation to spell out that the state had the right to create the database. She said she will withdraw her bill that was up for a vote Tuesday in the House of Representatives. Existing law prohibits people from taking more than $500 in loans at one time. However, that limit is essentially unenforceable without a centralized system to track the loans. Shay Farley, legal director of Alabama Appleseed, said the database will give the state the tools it needs to enforce the loan limit. A store owner said borrowers will seek out loans from online lenders. “The database, it will not work. It’s just not going to work. Over 50 percent of the industry is online and unregulated by the state of Alabama,” said Max Wood, the owner of Cash Spot stores in Birmingham and Tuscaloosa. Although the Banking Department has announced the creation of the database, it is unclear when it will be implemented. The department announced last week that a June rollout date had been delayed. Todd, Farley and other advocates said other reforms are needed in addition to the database. “While we believe these regulations are a step in the right direction, it doesn’t end the 456 percent interest rates payday lenders are allowed to charge Alabamians,” said Sara Zampierin, a staff attorney with the Southern Poverty Law Center. Bills pending in the Alabama Senate patterned after Colorado regulations would give borrowers up to six months to repay the loans instead of just 10 to 14 days. The longer repayment window would reduce what borrowers pay. Customers are unable to pay off a payday loan within two weeks, advocates said, and accumulate large fees by rolling over the loan or taking out subsequent loans to pay off the first. Wood said many storefronts closed after Colorado put similar requirements on payday lenders. Republished with permission from The Associated Press.
