Alabama Senate passes bill to protect consumers from payday loans

Inside Subprime: March 16, 2018

By Alex Huntsberger

On March 8, the Alabama State Senate passed a bill that, if it makes it through the House, will restrict the interest rates and payment terms that payday lenders can offer in the state. The bill passed 20-4 and will now move on the Alabama House of Representatives, where it is significantly less popular. If the bill gets killed in the House, Alabama residents will be stuck paying APRs up to 455 percent.

State Senator Arthur Orr (R-Decatur) sponsored the bill, which extends the minimum payment term that a payday lender can offer from 10 days to 30 days. Alabama payday loan stores can charge a flat fee of up to $17.50 per $100 loaned. With a 10-day loan, that’s an interest rate of 455 percent. With a 30-day loan, that $17.50 per $100 fee only brings the APR up to 220 percent. While that’s still a hefty amount, it’s a significant improvement from the current system.

Not only does the bill effectively halve the interest rates for payday loans, but extending the minimum loan term  gives borrowers a better chance of repaying the loan on time. A 30-day loan term means less rollover, a term which refers to taking out another loan in order to pay off the first one. It also reduces the odds that payday loan borrowers will get trapped in a dangerous cycle of debt, constantly paying interest on new loans without ever paying their debts off.

Or rather, the bill COULD do these things if it were to pass the House of Representatives and be signed into law by Governor Kay Ivey. But it most likely will not. In fact, the bill stands little chance of receiving so much as a floor vote. According to an article on AL.com, Orr doesn’t think his bill will even make it out of committee.

“The House committee has been pretty much the Bermuda Triangle and the place that any payday lending reform bill does not exit from,” Orr said.

The bill was opposed in the Senate by Senator Tom Whatley (R-Auburn) who spoke for an hour on the senate floor in a kind of mini-filibuster. Whatley claimed that the bill would force many payday lending storefronts to close and read aloud the first names of many people who he claimed would be put out of work were the bill to pass.

Alabama is fertile ground for payday lenders. As the nation’s fourth poorest state, it has over 900,000 residents living below the poverty line, or 19.2 percent of its total population. From AL.com:

“According to the state Banking Department, borrowers took out 1.8 million payday loans in Alabama last year. They total about borrowed was $609 million, and borrowers paid $106 million in fees on those loans. The average term was 20 days, and the average amount of fees was $59 per loan.”

In the 1990s and early 2000s, Alabama attempted to heavily restrict payday lending in the state, going so far as to cap interest rates and send cease and desist letters to lenders who violated them. But in 2003, intense lobbying from the payday lending industry led the maximum allowable annual rates to skyrocket from 190 percent to 455 percent.

It is the power of this same lobby that will likely spell death for Senator Orr’s attempt at consumer-friendly reform.

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