Alabama law firm starts petition demanding payday loan reform
An Alabama law firm launched a petition Wednesday calling on state lawmakers to pass a bill to put more stringent regulations on payday lenders. Bond & Botes, which has offices statewide, says payday lenders “skillfully set” traps for borrowers that see them taking out loans with interest rates and fees far higher than traditional loans and that Alabamans are being disproportionately hurt by these lenders. “We believe that payday loan reform would be a significant, positive step for the citizens of Alabama,” firm partner Bradford Botes said. “Our state does not have a good track record on this issue; interest rates for payday loans can be more than 450 percent, among the nation’s highest. By population, we also have a higher concentration of payday lenders than any other area of the United States. The firm’s petition, found on Change.org, is directed at Senate President Pro Tempore Del Marsh, Sen. Slade Blackwell who chairs the Banking and Insurance Committee, Senate Majority Leader Greg Reed, and Senate Minority Leader Quinton Ross. “These companies work hard to convince us that they provide a needed service in lending to people unable to participate in traditional options for loans,” the firm said in the petition. “But the truth is that payday lenders enrich themselves at the expense of those who can least afford it.” The Alabama Legislature has taken up bills to regulate the payday loan industry in the past, though none have made it into law. A bill that would have required reasonable payment terms and interest rates failed to make it through its committee references last year, and a 2017 version is currently waiting for a House vote after passing the full Senate. The House version of the bill, HB 321, is sponsored by a bi-partisan group of 45 legislators and would add a cap to the interest rate on payday and other types loans at 36 percent.
Alabamians took out a staggering 2 million payday loans last year
Last year, Alabamians took out more than two million payday loans, according to the state’s Banking Department. At the inaugural meeting of the Alabama Consumer Protection Task Force on Wednesday the Alabama Banking Department revealed the new figures, which indicate borrowers have taken an average of eight loans each since the a loan-tracking database was created in August of 2015. According to the data, there were 246,824 unique borrowers. The average loan was for $326, with an average fee of $56, and was paid back in roughly 20 days. The Banking Department began tracking the loans after winning a court case over the creation of the database to enforce an existing law, which limits consumers to having no more than $500 in payday loans at any given time. Figures revealed Wednesday, showed about 400,000 additional loans were declined. “We’ve got to make sure consumers are protected. I want our companies to make a reasonable profit. They have to. They can’t stay in business if they don’t, but we have to protect,” Governor Robert Bentley said at the meeting. Bentley created the Task Force through Executive Order 21 on June 14 to evaluate at and suggest changes to all of the state’s consumer credit laws, which apply to entities from mortgage brokers to pawn shops. Members of the Task Force are working to identify areas of Alabama’s consumer credit laws for possible revision or new legislation. The Task Force is comprised of 33 experts appointed by various stakeholder organizations including the Office of the Governor, Alabama Legislature, Alabama Law Institute, Attorney General’s Office, Alabama Bar Association, Alabama State Baking Department, Alabama Department of Insurance, State of Alabama Credit Union Administration, Alabama Appleseed, Arise Citizen Policy Project, Southern Poverty Law Center, AARP, Alabama Pawnbrokers Association, Community Financial Services Association, Mortgage Bankers Association of Alabama, Alabama Mortgage Professionals Association, Alabama Lenders Association, Alabama Consumer Finance Association, American Financial Services Association, Alabama Bankers Association, Alabama Credit Union Association and the Alabama Securities Commission.
Federal payday lending reforms find support in Alabama
An ongoing effort by the federal Consumer Financial Protection Bureau to rein in the excesses of high-interest “payday loan” lenders has so far been generally been well-received in Alabama. “The proposed CFPB rules have bipartisan support and empower consumers to make better financial decisions for themselves,” said Rep. Terri Sewell, a Democrat. “I strongly support the adoption of these proposed regulations and will continue to fight for greater consumer protections in my role as a member of the House Committee on Financial Services.” Sewell repeated an oft-cited figure that there are “four times as many payday lenders in Alabama as there are McDonalds” in supporting the regulatory action. “Borrowers should not be at the mercy of predatory lenders and CFPB’s proposed rules would strengthen consumer protections and make it harder to prey on vulnerable communities,” said Sewell, who also noted minority communities are disproportionately affected by payday lenders’ usurious behavior. Arise Citizens’ Policy Project, a nonpartisan public interest advocacy group, also endorsed the moves by and large, though they said state-level reforms are still needed. A related bill which would have limited interest rates among other reforms circulated in the state Legislature earlier this year, though it ultimately failed to reach the desk of Gov. Robert Bentley. “Today’s CFPB announcement is an important step in the right direction for payday and title loan borrowers in Alabama, but it’s not enough. The new federal rules would strengthen consumer protections by requiring lenders to verify borrowers’ ability to repay for many loans. But the rules contain many exceptions, and they may not go into effect for quite some time,” said policy analyst Stephen Stetson. “The new rules also would not change the extremely high annual interest rates that Alabama allows those loans to carry: up to 456 percent a year for payday loans, and up to 300 percent a year for title loans. Alabama needs to build on these rules at the state level by closing loopholes and encouraging more affordable short-term loans for borrowers,” said Stetson.
State Senate OKs payday lending reform bill
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.
Stephen Stetson: A good first step toward payday lending reform in Alabama
We’re calling for payday lending reform in Alabama, and we’re not alone. For years, reform of high-cost lending has been the goal of the Alliance for Responsible Lending in Alabama (ARLA), an incredibly wide-ranging coalition of activists and advocates. The groups pushing for reform span the spectrum, including 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. ARLA is a coalition staggering in its breadth and ideological diversity – and its members are excited to see the Alabama Legislature considering reforms that would lower costs for hundreds of thousands of payday borrowers now coping with interest rates of up to 456 percent a year. Let’s be clear: SB91, sponsored by Sen. Arthur Orr (R-Decatur) doesn’t give reform advocates everything they want. In an ideal world, lawmakers would cap interest rates on payday loans at 36 percent a year and allow more borrowers to be served by banks and credit unions (and family and friends), while making good plans and decisions about monthly budgeting. Sadly, that approach simply doesn’t seem politically possible right now in Alabama. Orr’s approach would do a whole lot of good for a whole lot of people, though. The bill, which the Senate is expected to consider in April, would enable the payday loan industry to stay in Alabama, while putting some common-sense rules in place to govern the loans. SB91 models reforms made in Colorado in 2010. The bill would cut interest rates, give payday borrowers at least six months to repay, and allow them to pay down the loan principal in installments. These would be meaningful changes. Under current Alabama law, payday loans are usually for two weeks and must be repaid in full, with no requirement for lenders to allow installment payments. In Colorado, extending the loans’ length and allowing installment payments has given borrowers a shot to reduce their debt without it eating up huge chunks of every paycheck. Fewer people are pulled into a ceaseless churn of short-term loan after short-term loan. Again, SB91 wouldn’t solve every problem related to consumer debt, and it wouldn’t eliminate the payday loan industry in Alabama. It’s a compromise proposal that would curb some of the worst excesses of an industry built on loans that leave far too many people trapped in debt. It would help keep some folks out of bankruptcy court, and it would allow more reasonable lending approaches to flourish. 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. A growing number of Alabamians now agree: The time has come to give payday borrowers some relief. SB91 would be a real and substantial step in the right direction for Alabama consumers. • • • Stephen Stetson is a policy analyst for Arise Citizens’ Policy Project, a nonprofit, nonpartisan coalition of 150 congregations and organizations promoting public policies to improve the lives of low-income Alabamians. Email: stephen@alarise.org.
Alabamians taking out $14M a week in payday loans
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.
Alabama Episcopalians join fight against predatory loans
Congregants within Alabama’s Episcopal churches — including members of the clergy — are joining hands with consumer advocates to stop “loan sharking,” or the practice of deriving excessive profits from so-called predatory loans. A group of demonstrators against the excesses of the money-changers of Biblical lore gathered in Birmingham earlier this month to draw public attention to a problem that’s as old as time, but which has been revisited by the Legislature and state Supreme Court in 2015. Alabama’s high court dealt a blow to “payday” lenders when they said the state’s Banking Department can track recipients of the high-interest, short-term loans in order to enforce a current $500 limit currently codified in state law. That move was a victory for state regulators, who sought the court’s approval for the move. “It was great. Hallelujah,” said Rep. Patricia Todd of Birmingham after the ruling — again invoking the sacred, a recurring theme when it comes to predatory loans. President Barack Obama took on the issue when he visited Lawson State Community College in Birmingham this year. He noted that payday lenders outnumber McDonald’s locations by a 4 to 1 ratio in Alabama, and that the controversial practice contributes to generational cycles of poverty and debt. Borrow Smart Alabama is a pro-lender group that emerged this year in opposition to bills circulating in the Legislature that would limit the number and size of payday loans. They argue they are regulated enough already and that proposed changes wouldn’t affect online lenders or those who operate on Native American reservations, a common practice in the state. Whether the short-term loans industry or Episcopalian ministers — who recently used TV’s “Shark Week” as a jumping-off point for debate on the subject — remains to be seen as the Legislature convenes this month to finalize a budget.
Time runs short as lawmakers look for budget solution
Lawmakers are running short on time and options as they seek a solution to the projected General Fund shortfall for next year. There are eight meeting days left in the 2015 legislative session. Lawmakers agree they need to work together. They haven’t agreed on a solution. “We really just need to sit down and come up with ideas. Right now, it’s kind of been everybody coming up with their own ideas,” House Speaker Mike Hubbard said. “We’ve got to work together over the next few days.” The Alabama House of Representatives will vote Tuesday on a stripped down $1.6 billion budget that cuts about $200 million from state agencies. Gov. Robert Bentley has called the spending plan “irresponsible” and one that would “hurt people.” Legislators have so far rejected Bentley’s call for $541 million in taxes. House Republicans at one point threw their support to a much smaller $150 million revenue plan that was anchored by a 25-cent per-pack tax increase on cigarettes. House support crumbled after Senate President Pro Tem Del Marsh predicted senators would not go along with the plan, Republicans said. “We’ll see what the body thinks when they actually see the budget. We’ll have to make some decisions,” Marsh said. Marsh said so far lawmakers aren’t hearing calls from people urging revenue over cuts. That could change as the budget gets closer to being finalized, he said. “But then again we might not hear anything,” Marsh said. Behind-the-scenes talks are continuing on the budget. Marsh and Hubbard have scheduled a joint press conference for Monday to discuss the budget. A Special Session on the budget this summer is looking likely, key legislators said. The 2015 Legislative Session by law must conclude by June 15. Bentley has vowed to veto any budget with deep cuts to agencies and threatened to call lawmakers back into Special Session multiple times if needed. Here’s a look at the status of some other issues before Alabama lawmakers in the final days of the legislative session. Payday loans A House committee has approved new restrictions on payday loans that short-term lenders can offer to consumers in need of quick cash, but the bill has yet to get a floor vote. A bill by Trussville Republican Rep. Danny Garrett would give borrowers more time to repay a loan, taking the window from 14 days to six months. He said that would reduce the effective annual interest rate from more than 456 percent to 36 percent. Garrett said the loans “trap borrowers in a debt cycle” as people renew the loan, or take out new ones when they can’t pay off the first. Payday store owners oppose the bill, arguing that it will drive most stores out of business. Gambling A lottery-and-casino bill has cleared a Senate committee, but faces long odds. The bill would authorize, if lawmakers and voters agree, a state lottery and casinos at four state dog tracks. Hubbard said he doesn’t think there is support in either legislative chamber for the gambling bill. However, Marsh, the bill’s sponsor, said he thinks many legislators and voters would prefer legalized gambling to taxes and budget cuts. Because a lottery and casinos would have to be approved by voters, gambling revenue would not be available when the fiscal year begins Oct. 1. Gay marriage Alabama lawmakers introduced a number of bills in anticipation that the U.S. Supreme Court later this year could legalize gay marriage nationwide. A House-passed bill would give legal protections to judges and ministers who refuse, for religious reasons, to marry certain couples. However, an amendment on the bill in Senate committee adds that the refusals can’t violate the U.S. Constitution. A House committee has approved a bill that would allow private adoption agencies to turn away gay couples on religious grounds. The bill is largely seen as an effort to protect church-affiliated children’s homes from losing their state licenses and state contracts. A Senate committee has approved another bill to do away with state-issued marriage licenses. Neither bill has gotten a floor vote. Republished with permission of The Associated Press.
Committee OKs payday loan regulation
An Alabama House committee on Wednesday approved new restrictions on payday loans that short-term lenders can offer to consumers in need of quick cash. Trussville Republican Rep. Danny Garrett said the loans “trap borrowers in a debt cycle” when people renew the loan, or take out new ones when they can’t pay off the first. Garrett’s legislation would give borrowers more time to repay a loan, taking the window from 14 days to six months. He said that would reduce the effective annual interest rate from more than 456 percent to 36 percent. “We’re trying to get people who are in a debt trap, who are in a cycle of being not able to get out of debt, to not be sucked into this,” Garrett said. The committee approval ended a losing streak for reform advocates who for years have urged the state to crack down on the payday loan industry. Alabama Appleseed’s Legal Director Shay Farley said the longer time frame would give borrowers a “fighting chance to pay the loan.” Payday loans are short-term loans of up to $500. Borrowers pay a fee of up to $17.50 per $100 borrowed. “These are exactly the kind of reforms that are needed,” Farley said. “I asked how many people among us who could repay $587 in 14 days. The answer is you can’t.” Payday lenders have argued that their stores provide a service to people who don’t have other means to access cash. Max Wood, a payday store owner and president of Borrow Smart Alabama, said the stores could not afford to stay open under the change and said it was attempt to “eliminate the industry.” “They’ve tried to shut us down using different ideas and concepts,” Wood said. Garrett said people with poor credit need a way to access to loans. “There needs to be a fair way, a way that doesn’t exploit people and a way that doesn’t depend on usury,” Garrett said. The bill now goes before the 105-member House of Representatives. The legislation has a bipartisan coalition of more than 30 lawmakers signed on as co-sponsors, but still faces an uncertain outlook. Republican Rep. Mike Hill of Columbiana noted the possibility of federal regulations on the industry. “I think we need to think about this longer and decide what is the right direction to go. I’m not saying we don’t need some reform,” Hill said. President Barack Obama put a spotlight on the payday loan industry in a visit to Birmingham in March. His visit came as the Consumer Financial Protection Bureau outlined a proposal to put new limits on the industry. Republished with permission of The Associated Press.
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.
