Lawmakers Push for Alabama Payday Loan Reform in Mountain Brook

Inside Subprime: March 5, 2019

By Lindsay Frankel

Two Alabama state lawmakers recently introduced a bill that would combat predatory Alabama payday loans at a forum in the affluent Mountain Brook community.

The bill, which was sponsored by State Rep. Danny Garrett, R-Trussville, and co-sponsored by State Rep. David Faulkner, R-Mountain Brook, would extend the minimum term on payday loans from 14 to 30 days and cap annual interest rates at 220 percent.

Currently, Alabama payday loan providers charge borrowers an average of 461 percent, according to Pew Charitable Trusts. That means it costs a borrower $525 just to borrow $300 for five months. Consumer advocates have long criticized the payday lending industry for trapping cash-strapped borrowers in an ongoing cycle of debt. Garrett said at the forum that while he’d like to drive out the industry entirely, the legislation would be an important first step.

The discussion was organized by a supportive coalition of churches, social service organizations, and lawmakers. Garrett said the issue of reining in high-cost payday loans is one that draws bipartisan support across different religions.

“This is an issue that’s united all faith groups, it has united Democrats, Republicans, liberals and conservatives,” Garrett told the Mountain Brook forum. “We have a really strong coalition. If we can get this to the floor I think we can get this to pass.”

State Rep. David Faulkner was also optimistic. He said the bill strikes a balance between enhancing consumer protections and allowing subprime borrowers access to credit. Many borrowers turn to payday loans because they lack alternative options; poor credit or a lack of established credit history precludes them from taking out a loan from a bank or credit union.

“This is a balance between consumer protection and free market,” Faulkner said. “What we have now has loopholes in it and it has gone too far and we need to rein it in.”

Sherry Amos Prater, a resident of Vestavia Hills, shared a personal story of how predatory payday loans adversely impacted her family. When her then-husband took out a series of payday loans, Prater and her children lost their savings and their home. And Prater is not the only Alabamian to incur financial harm at the hands of payday lenders; within the span of a year, 239,000 residents took out more than 2 million payday loans. The numbers show that these risky loans aren’t being used for one-time emergencies as advertised; they’re trapping people in debt.

This is not the first attempt by lawmakers to limit payday lending and increase consumer protections in the state. Senator Arthur Orr recently introduced similar legislation in Montgomery. And other efforts in recent years have already reduced the number of payday lenders in Alabama.

For more information on payday loans, scams, and cash advances and check out our city and state financial guides including AlabamaBirminghamHuntsville, Mobile, and Montgomery.