Report Highlights Dangers of Payday Loans in Alabama
By Jessica Easto
A new report was released last month that analyzes payday loans in Alabama, a state with one of the highest poverty rates in the nation and more payday lenders “than hospitals, high schools, movie theaters and county courthouses combined.”
The report, called “Broke: How Payday Lenders Crush Alabama Communities,” was conducted by Alabama Arise, a poverty advocacy nonprofit, and the Alabama Appleseed Center for Law and Justice. It uses government data from 2015 through 2018, statewide polling, and interviews with Alabamians to summarize the history of payday loans in Alabama, explain current legislation and practices surrounding payday loans, and review financial products and policies that could serve as alternatives to payday loans.
Some of the statistics are startling. According to the report:
- more than 200,000 Alabamians take out at least one payday loan a year.
- of those who use payday loans, 85 percent take out multiple loans a year.
- in 2018 alone, more than 1.7 million payday loans were borrowed in Alabama.
- payday lenders in Alabama can legally charge up to 456 percent APR, higher than the national average of 400 percent.
- Alabamians pay more than $100 million annually in payday loan fees, which do not reduce the loans’ principals.
The report points out that most Alabamians would support legislation that caps APRs, extends payday loan terms, or outright bans payday loans. This is likely because payday loans are a form of predatory lending. Payday loan firms often target vulnerable populations, such as the more than three-quarters of Americans living paycheck to paycheck without savings, with loans advertised as “cash advances” or “no credit check loans.” They use high APRs, hidden fees, and short terms to trap borrowers in a cycle of debt. Many borrowers end up taking out multiple payday loans in order to keep up with payments.
Alabama is the sixth poorest state in the nation. When times are tough, Alabamians take out an average of 5,000 payday loans per day. According to the data, this costs thousands of Alabama families millions of dollars, and it makes predatory lenders a lot of money—they are on track to take more than $1 billion out of Alabama to out-of-state headquarters over the next ten years, according to the report.
The report concludes with several recommendations to fight payday lending in Alabama, pointing to other states who have banned or regulated this form of predatory lending. These recommendations include capping APRs at 36 percent, lengthening loan teams to 30 days at minimum, restricting loan amounts to 10 percent of a borrower’s income, and bolstering reporting and ability-to-pay requirements, among others.
These recommendations fall in line with payday legislation that other states have passed or proposed. However, the report includes a few Alabama-specific recommendations as well. For example, half of all Alabamians with court debt pay for it with payday loans. Since those who don’t pay court fees go to jail, the report proposes that the state eliminate court fees or scale them based on a person’s ability to pay.