Residents Want Alabama Payday Loan Reform
Inside Subprime: Dec 5, 2018
By Lindsay Frankel
An increasing percentage of Alabama citizens have negative attitudes toward payday loans and want reform, according to a study conducted by PARCA, a nonprofit research organization. In 2018, 85 percent of voters said payday loans should be prohibited or restricted, compared to 60 percent in 2017.
Respondents were asked whether they would support implementing reforms that have been successful in other states, such as capping interest rates, requiring payday loan firms to ensure a borrower has the ability to pay off the loan, or extending the loan term.
Other states have limited interest rates to 36 percent, and while this would effectively kill the industry in Alabama, 73.6 percent of voters supported an interest rate cap. This figure went up from 64.7 percent in 2017. The 2017 poll also found that 72.2 percent of survey respondents favored requiring lenders to assess a borrower’s ability to repay before issuing a loan. But the Alabama State Legislature has been hesitant to pass such legislation in the past, and the State Banking Department has indicated that enforcing such a rule may not be viable.
Almost three quarters of respondents agreed with the statement: “The Alabama legislature should pass legislation placing payday loans on a minimum 30-day repayment schedule.” The minimum loan term is currently 10-14 days in Alabama.
Christopher Nanni, President of the Community Foundation, said a loan term extension would be an effective compromise that would curb exorbitant interest rates while allowing the payday lending industry to prosper. “This 30-Day-to-Pay compromise solution is a win-win which allows consumers a reasonable amount of time to pay back their loans while allowing the industry to remain profitable,” he said. “Our hope is that the returning and newly elected Alabama legislators will listen to the electorate and make payday lending reform a priority this session.”
While industry advocates argue that legislative reform would put payday lenders out of business, most voters don’t share their concern. About 80 percent of survey respondents agreed that state law should focus on consumer protection, even with the risk of reduced profitability for payday lenders. Alabamians are more concerned about the dangers of payday loans, which often trap borrowers in a cycle of debt, than maintaining the availability of payday loans in Alabama.