Birmingham Subprime Report: Title and Payday Loans in Birmingham, Alabama
- Nickname: The Magic City
- Population: 212,157
- Website: www.birminghamal.gov
While many residents of Birmingham struggle to put food on the table and provide for their families, lawmakers are at odds about how to help them. Some say that taking away payday and title loans only makes it harder for these people to survive when they get laid off or have a medical emergency.
However, other consumer advocates argue that high interest rates on payday and title loans are the real reason why so many low-income folks are stuck in a cycle of poverty. It remains to be seen if they’re able to pass forceful legislation against these predatory lenders or if Birmingham will be another casualty.
Introducing Birmingham, AL
Birmingham has a rough and tumble history. Home to the Birmingham Civil Rights Institute, the city was at the forefront of the Civil Rights campaign and is an important part of American history.
Even with the fair temperate weather of the south, Birmingham is not immune to the problems of the big cities. Birmingham has a poverty rate of 30.9%,2 almost the double national average of 13.5 percent.3 Like the rest of the South, Birmingham’s poverty and unemployment rates have been a long-standing eyesore.
The current unemployment rate is 3.1% and the job growth rate is projected to be at 1.5 percent.4 Even though the living wage in Birmingham is low compared to other parts of the country, there’s still a discrepancy between what residents of Birmingham earn and what they need to live comfortably.
Currently, the Birmingham living wage is $10.98 per hour for one adult, $22.41 for one adult and one child, and $28.20 for one adult and two children.5 In 2016, the city voted to increase the minimum wage to $10.10 as part of a nationwide attempt to benefit the working class. However, the state legislature then passed a law that said local cities could not dictate their own minimum wage. Currently the minimum wage is at $7.25.6
Because poverty rates are so high in Birmingham and jobs are hard to come by, many citizens rely on payday and title loans to get through tough times. Unfortunately, for many of them, these emergencies do not pass and become one more impossible hurdle for them to jump through.
Birmingham has a poverty rate of 30.9%2
- City Population:212,157
- Poverty Rate:30.9%
- Unemployment Rate:3.1
- Job Growth Rate:Projected 1.5% in 2017
- Total City Debt:$3.14 billion for Jefferson County
- Debt per capita:$401
- Living Wage:$10.98 per hour for 1 adult, $22.41 for 1 adult and 1 child, $28.20 for 1 adult and 2 children
- Minimum Wage:$7.25
- Median Household Income:$51,459 in 2015
- Cost of Living:$22,843 for 1 adult, $46,606 for 1 adult and 1 child and $58,660 for 1 adult and 2 children
- % of Population That Rents:31.07%
- % of Population That Owns:68.93%
Payday Loans in Birmingham, Alabama
What is a payday loan? You’ve probably seen them mostly located in low-income areas, where payday storefronts are most common. A payday loan is a loan given to an individual using their future paycheck as collateral. When the lender gives them the money, the person signs a post-dated check over to them for the amount of the loan plus interest. If they complete a payday loan application online, the lender gets their bank account information.
Unfortunately, most people aren’t able to repay the loan when it comes due, usually in a few weeks. That’s because people who take out payday loans are usually experiencing severe cash flow issues that can take months to resolve. When they aren’t able to repay the loan, they can extend the original loan with even more fees. The more you extend and refinance the payday loan, the more fees you’ll pay overall.
Payday loans are legal in Birmingham, where in 2015 two million payday loans were issued with the average borrower taking out eight loans each.7 The fee for every $100 borrowed is $17.50 the max anyone can borrow is $500. However, the APR for these loans can be as high as 456%.8 Considering that most credit cards only charge between 0-30 percent APR, these figures are astronomical.
According to the League of Women Voters of Alabama, 66% of payday loan customers ended up refinancing the loan, many more than once.9 A local article illustrated the problem with payday loans: “Stephen Stetson, a policy analyst at Alabama Arise, said the repeat usage suggests that people are using the loans to pay recurring expenses and not just for emergencies. ‘These loans are marketed for emergency use only. If somebody is taking out that many in a year, it means they are using them to pay the bills,’ Stetson said.10
With such a high local poverty rate, it shouldn’t be surprising that people resort to payday loans and then find it impossible to repay them in a timely manner.
Two million payday loans were issued in Alabama in 2015.
Alabama payday loan borrowers took out an average of EIGHT payday loans that year.18
A Personal Encounter with Payday Loans in Birmingham
[A payday or title loan borrower] will have to pay that loan back in 30 days, so that means that he’s got to pay $1,000 back, plus 25 percent interest, that’s $1,250 in 30 days. If he didn’t have $1,000 to start with, it’s going to be hard to pay $1,250 back.
When you’re living paycheck-to-paycheck, you’re often one emergency away from having a serious financial problem. And for those in Alabama living in poverty, that day can come sooner rather than later.
Right now, many Birmingham payday lenders require that their loans are repaid in two weeks. Unfortunately, that amount of time often isn’t enough for people to repay their loans. Former consumer lender Dan Gowen said he thinks the problem in Alabama has gotten worse in the past 15 years. Payday loans are a terrible solution for the people who use them. Say someone borrows $1,000 to help pay for a relative’s funeral.
“He will have to pay that loan back in 30 days, so that means that he’s got to pay $1,000 back, plus 25 percent interest, that’s $1,250 in 30 days,” Gowen said. “If he didn’t have $1,000 to start with, it’s going to be hard to pay $1,250 back.”
This example shows why payday loans can be so detrimental and how they can quickly take a person’s finances from bad to disastrous.
- Legal Status:Legal
- Payday Transactions:2 million payday loans in 2015 - each borrower taking out 8 loans each
- Payday Fee per $100:$17.50
- % of Customers who Refinance:66%
- Average Loan Size:$326 - average fee of $56
- Maximum loan amount and interest rate:$500 and 456%
- Maximum annual interest rate:456%
- City Specific Regulations:747 licensed payday lenders in 2016 - down from 1,100 in 2015 Maximum limit of $500
Two thirds of Alabamians support banning payday loans outright.7
Birmingham Alabama Payday Loan News
According to an op-ed published by Dr. Neal R. Berte, a member of the now-defunct Alabama Consumer Credit Task Force, Alabama didn’t have a payday lending problem until 2003. That’s when the legislators changed the law to allow APRs of 456% – one of the highest rates in the country.
Berte also says that the spiritual community in Birmingham is also against predatory lenders, or as it’s known in the bible, usury. Pastors and other religious officials have seen the damning effects of predatory lenders in their congregations and have repeatedly called on elected officials to make significant changes.
Lenders have also fought against creating a statewide database for learning more about payday loans. The case went all the way to the Alabama Supreme Court, where the industry lost.7
A Note on Regulating Payday Loans in Alabama
In 2017, Alabama Sen. Arthur Orr, R-Decatur proposed a bill that would make a month the minimum amount that a payday loan borrower would have to repay their loan. Right now most payday and title loans have a shorter window, which most borrowers can’t reach. When the loan comes due, they end up refinancing the loan, causing more fees to pile up.
The House minority leader Anthony Daniels is supporting House Bill 321 which would enforce a 36 percent interest rate cap on payday and similar loans. Why 36 percent? That’s the current rate that US service members get if they take out a short-term loan. In states where 36 percent is the max for short-term loans, there are no payday lenders.20
Unfortunately, it seems like not all Alabama lawmakers are considerate of what will benefit their consumers. In March 2017, a bill passed in the House that would allow payday lenders to lend up to $1,500. While these legislators claim that they’re just trying to help people who might need to borrow money and have no other resources to turn to, in fact they’re just enabling these people to borrow more than they can afford to repay.21
The 2016 Birmingham Alabama median house or condo value was $88,500.16
Title Loans in Birmingham, Alabama
While many people rely on payday loans when they need a quick influx of cash, other people find that the $500 limit is too low for their needs. So what do they do when they need a bigger amount to borrow? They rely on title loans.
A title loan is loan made where the car’s title acts as collateral against the loan. For example, if you need a title loan, the lender gives you an amount less than the resale value of the car while you sign an agreement giving them possession of the car if you default or fail to repay the loan.
A report from the Pew Charitable Trust analyzed focus groups in Birmingham about how they used title loans. People said that they believed the title lenders that they’d be able to repay the loans within the initial period and didn’t realize that payments would go toward interest and not the principal.
Many also described how difficult it was to keep their car from being repossessed. One person said, “They wanted to take my car just for one payment, and I thought that was so very, very unfair. So what I had to do, I had to go to my credit union to borrow the money to pay them back.”
According to the report, which included borrowers from Houston and St. Louis, 35% of borrowers only had one car in their household. That means repossession could affect how their children get to school and other activities and how they transport themselves to work. About 15% of respondents said they’d have no other way to get to school or work.
Those surveyed said they used windfalls like tax returns to pay off title loans, borrowed the money from friends and family members or took out another loan from a bank or credit union.10
[Payday loans] are marketed for emergency use only. If somebody is taking out [eight] in a year, it means they are using them to pay the bills.
A Personal Encounter with Title Loans in Birmingham
Frances Beck is a struggling single mother, trying to support herself through college and make a better life for her and her child. It was during her last year of school that she ran out of money and needed a way to continue to pay for her living expenses.13
She had been working part-time while going to school, but her last semester required her to take on an unpaid internship to get the last credits she needed to graduate. Going over her assets and her budget, the only option she found was to take out a title loan on her car.
“Her loan has an annual interest rate of 120 percent, a level illegal in more than 30 states and described as “abusive” by the Center for Responsible Lending, a national advocacy organization in Durham, N.C.”14
Beck is one of many people in Alabama who take out title loans; the state currently ranks first in the amount of people who borrow against their vehicle. Unfortunately, Alabama is only one of two states (Georgia being the other) where a lender is allowed to take possession of the vehicle, sell it and keep the entire amount even if that figure is greater than what the borrower currently owes them.
Beck’s loan had a monthly interest rate of $320 and while she made $2,000 in payments to the lender, they didn’t count any of them toward her $3,200 principal. It wasn’t until she went to a professor for help and he paid off the balance for her in exchange for giving her an interest-free loan. She’s lucky that she found someone to care about her situation and warns others now to avoid taking a title loan, even if means asking your friends and family for her.
Because there is little regulation on title loans, many consumers don’t understand what they’re signing up for when they take out a title loan. They don’t realize how difficult it will be to pay back and how many times they might need to refinance the loan.13
- Legal Status:Legal
- Auto-Title Loan Transactions in Alabama:$357 million or 152,544 in 672 title loan stores
- Fee per $100:25% per month
- Average Loan Size:More than $1,000
- Repossession Rate:1 in 5 nationally
- City Specific Regulations:Currently, title loans are governed by the Pawnshop Act, which allows 300 percent annual interest rates
Alabama Payday Loans and Title from the Lawmakers' Perspective
Alabama is one of the worst states in the country for payday lenders and it’s no surprise why. “Payday lenders gave more than $475,000 to lawmakers during the last election season, including top legislative leaders and members of key legislative committees.”15
With that kind of lobbying it’s not surprising why many legislators aren’t in a rush to ban payday or title lending or support interest rate caps.
In fact, lobbying is the direct reason why interest rates are as high as they are. “Lobbying efforts by lenders in 2002 resulted in the modification of the Alabama Small Loan Act that provided an alternative rate schedule increasing allowable loans to approximately 190% APR (Act 1959-374 Sect. 5-8-15, Alternative rate schedule, subsection (m).16
In 2003, the Legislature passed the Deferred Presentment Act, carving out additional exceptions for small loans and setting the current APR at 456% (Act 2003-359).”
Last year a bill attempting to regulate this industry in Alabama made its way through the state senate, but died in the House of Representatives.
The real disappointment is that Alabama residents are directly opposed to lawmakers efforts to suppress regulation on payday and title lenders. “Two-thirds of Alabamians support banning payday loans outright; 65% of Alabamians support a 36% APR cap on payday loans; 63% of Alabamians support banning high cost installment loans.”
Alabama is one of 32 states that allow interest rates to reach into the three-figure mark for short-term and title loans. Other states have interest rate caps of 36%, a figure that often puts payday and title lenders out of business.
In 2016, Alabama governor Robert Bentley established the Alabama Consumer Credit Task Force to study consumer finance laws including those involving payday and title loans. Earlier that year a bill that would’ve created lower fees for payday lenders died in the statehouse.
However, Bentley was accused of using campaign funds to cover up an extramarital affair and resigned in April 2017. His successor Kay Ivey disbanded the task force in July 2017.17
Helping Consumers in Birmingham, Alabama
Even though title and payday loans are legal in Birmingham, that doesn’t mean every lender is always following the rules. Many try to include stipulations in contracts that are illegal or fail to notify consumers of what their loan will actually cost in the long run. Some are operating with an inactive license or have never been properly licensed.
One of the few ways to shut down a payday or title lender is to file a complaint about them, which can trigger an investigation. If you’d like to file a complaint against a payday or title lender in Birmingham, you have to reach out to the State Banking Department at http://www.banking.alabama.gov. From there, you will find the complaint form which you can mail or email to the following location:
State of Alabama
State Banking Department
ATTN: Consumer Lending
P.O. Box 4600
Montgomery, AL 36103-4600
The form requires that you detail exactly what your issue is, if you’ve complained to anyone else about this matter, if you’ve hired an attorney, and what kind of resolution you’re looking for. You should also include copies of the original contracts you signed. Do not include the originals as you may need those later.
Before filing your complaint, make sure that the organization you’re reporting is licensed with the state. You can find their license information through the Bureau of Loans. After you’ve filed your complaint, you should try to reach out every couple weeks to check on the status of your case. It’s unclear how long it will take before issues are resolved.
If you want help pursuing your case, you can look into low-cost or free legal clinics in Birmingham. These include the following:
Why Payday and Title Loans are so Prevalent in Birmingham, Alabama
There’s always been a strong correlation between low-income communities and payday lenders. In areas where people are wealthier, more educated and of course, whiter, there are more banks and credit unions available for them to use. In neighborhoods where people are poorer, less educated and more likely to be a minority, payday lenders line the streets where they live. When they go to borrow money, they hit up a pawn shop or a title loan office.
We can’t ignore Birmingham’s poverty rate when discussing the problem of payday lenders. In a city where almost a third of residents live at or below the poverty line, it’s not a surprise that payday lenders thrive.
That’s why these people need legislators to stand up for their rights and protect their interests. Like Frances Beck, people will turn to payday lenders if they need money, but if they don’t have payday lenders, they’ll find other ways. Creating a cycle of debt won’t help anyone trying to improve their lives.
Outside Help for Payday and Title Loans in Birmingham
There are local nonprofits in Birmingham that can help people struggling to budget and manage their finances. They include the following organizations:
- Jefferson County Committee for Economic Opportunity: This organization provides emergency rental and mortgage assistance residents who qualify for help. They also put on monthly financial literacy workshops about a variety of topics including improving credit, saving and banking.
- Neighborhood Housing Services of Birmingham, Inc. provides down payment and home-buying assistance programs as well as general financial education. They specialize in budget management and credit counseling, two important areas for those struggling with cash flow.
- United Way 211 connects residents to programs available in their community. They don’t always facilitate those programs, but they can help you find what you’re looking for.
Guides to Payday and Title Loans in Other Alabama Cities
You know payday and title loans in Birmingham are a problem. But what about other Alabama cities?
Check out these payday and title loan guides for the following cities in Alabama…
 Census.gov. “Quickfacts.” Accessed on Dec. 27, 2017 from https://www.census.gov/quickfacts/fact/map/birminghamcityalabama/PST045216#viewtop.
 “What is the current poverty rate in the United States.” Center for Poverty Research. University of California, Davis. Accessed December 27, 2017 from https://poverty.ucdavis.edu/faq/what-current-poverty-rate-united-states.
 Budhwani, Dannial. “Alabama job growth expected to pick up the pace in 2017.” Birmingham Business Journal. Accessed December 27th, 2017 from https://www.bizjournals.com/birmingham/news/2017/08/30/alabama-job-growth-expected-to-pick-up-the-pace-in.html.
 “Living Wage Calculation for Jefferson County, Alabama.” Living Wage Calculator. Accessed December 27th, 2017 from http://livingwage.mit.edu/counties/01073.
 “Alabamians used payday loans two million times in 2015″ AL.com. Accessed December 27th, 2017 from http://www.al.com/news/index.ssf/2016/09/alabamians_use_payday_loans_tw.html.
 “Payday Lending Stores in Alabama: Facts and Issues” The League of Women Voters of Alabama. Accessed December 27th, 2017 from http://www.lwval.org/payday-lending/payday-lending-facts-&-issues.pdf.
 Berte, Neal. “Alabama’s toxic lending problem: Who cares?” Al.com. Accessed December 27th, 2017 from http://www.al.com/opinion/index.ssf/2017/05/alabamas_toxic_lending_problem.html.
 Izor, Chris. “Viewpoints: Alabama leads nation in car-title loan outlets.” Blog.AL.com. Accessed December 27th from http://blog.al.com/birmingham-news-commentary/2012/09/viewpoints_alabama_leads_natio.html.
 Lawson, Brian. “With 239,000 Alabamians using payday loans, Alabama Sen. Arthur Orr wants industry reform.” WHNT.com. Accessed on December 27th, 2017 from http://whnt.com/2017/04/04/with-239000-alabamians-using-payday-loans-alabama-sen-arthur-orr-wants-industry-reform/.
 Bourke, Nick. “Auto Title Loans. Market practices and borrowers’ experiences.” PewTrusts.org. Accessed on December 27th, 2017 from http://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf.
 Brian, Lyman. “Gov. Kay Ivey disbands gambling, grocery tax task forces.” MontgomeryAdvertiser.com. Accessed on December 27th, 2017 from http://www.montgomeryadvertiser.com/story/news/politics/southunionstreet/2017/07/12/gov-kay-ivey-disbands-gambling-grocery-tax-task-forces/474077001/.
 “Community Programs and Services.” Jefferson County Committee for Economic Opportunity. Accessed on December 27th, 2017 from http://www.jcceo.org/programs_services.
 “Budget Management and Credit Counseling.” Neighborhood Housing Services Birmingham. Accessed on December 27th, 2017 from http://nhsbham.org/budget-management-credit-counseling/.
 “States with highest, lowest payday loan rates.” USAToday.com. Accessed on December 27th, 2017 from https://www.usatoday.com/story/money/personalfinance/2014/04/20/id-nv-ut-have-among-highest-payday-loan-rates/7943519/.
 Lyman, Brian. “House committee OKs changes to some small loans.” MontgomeryAdvertiser.com. Accessed on December 27th 2017 from http://www.montgomeryadvertiser.com/story/news/politics/southunionstreet/2017/03/08/house-committee-oks-changes-some-small-loans/98903460/.
 “Birmingham, Alabama.” City-Data.com. Accessed on January 3rd, 2018 from http://www.city-data.com/city/Birmingham-Alabama.html.