The Debt Trap: Title and Payday Loans in Huntsville, AL
- Nickname: Rocket City
- Population: 180,105
- Website: www.huntsvilleal.gov
Like most cities in Alabama, Huntsville is greatly affected by the sheer volume of payday and title lenders. Located in one of the most-poverty stricken states, Huntsville residents are susceptible to the sly marketing campaigns of payday and title lenders.
While research shows that most residents want more regulation on how much payday lenders can charge, lawmakers have not been able to garner enough bipartisan support to make that happen. Consumer advocates, local organizations and voters need to band together to make it clear that they don’t support payday lenders and that they want them gone from their state.
Introducing Huntsville, AL
Located on the north end of Alabama, Huntsville is the state’s third-largest city, with a population of 193,0791. Huntsville is home to the U.S. Space & Rocket Center® (USSRC) and the Marshall Space Flight Center. Huntsville is the proud owner of a large portion of NASA’s history, as well as a current hub of biotechnical companies.
Partly because of the slew of science and tech-related jobs, Huntsville’s employment and economic figures aren’t as dire as other cities in the Yellowhammer state. Huntsville has a poverty rate of 18.2%2, unemployment rate of 2.9%3 and job growth rate of 0.54%4.
However, Huntsville isn’t a mecca for blue-collar workers either. The current minimum wage is $7.25 while the living wage is $10.40 for one adult, $21.67 for one adult and one child, $27.46 for one adult and two children.5 The median household income is $49,060 in 2014,6 slightly lower than the national average of $59,000.7
The total city debt in Huntsville is $12,540,958.74 for Madison County8 with a debt per household figure of $64.959.
Because of the difference in what residents of Huntsville earn and what they need to live, it’s not surprising that payday and title lenders have found a comfortable home in the Rocket City. Even when there’s a slight difference between the living wage and minimum wage, it can lead residents to being vulnerable to predatory lenders, especially if they fall on hard times.
Remember, Alabama overall is still the fourth-poorest state in the country and has more payday lenders than McDonald’s locations.10 In fact, only two other states have more payday lenders overall—South Dakota and Mississippi.
While proponents say payday lenders are helpful for a vulnerable population, they’re more likely to hinder economic advancement. If you can find a payday loan easier than you can find a Big Mac, something is wrong.
- Poverty Rate:18.2%
- Unemployment Rate:2.9%
- Job Growth Rate:0.54%
- Total City Debt:$12,540,958.74 for Madison County
- Debt per capita:$64.95
- Living Wage:$10.40 for 1 adult, $21.67 for 1adult and 1 child,$27.46 for 1 adult and 2 children
- Minimum Wage:$7.25
- Median Household Income:$21,642 for 1 adult, $45,063 for 1 adult and 1 child and $57,118 for1 adult and 2 children
- Cost of Living:31.10% rent
Payday Loans in Huntsville, AL
Most of us have driven past a payday loan at some point in our life, but many of us aren’t aware how they work. A payday lender gives consumers loans based on their paycheck. You usually have to present a pay stub or proof of income in order to receive a payday loan. When you sign up for the loan, you often write a post-dated check or give the lender your bank account information so they can automatically debit you.
People who take out payday loans often use them as a last resort. They’ve already maxed out their credit cards, overdrawn their bank accounts and taken salary advances at their jobs. Maybe they’ve even asked their family and friends for money or attempted to take on extra work. For them, the payday loan is often a last-ditch option.
Why do people try to generally payday loans? Because they come with notoriously high interest rates. For example, in Alabama the maximum amount a person can borrow is $500 and the maximum interest rate is 456%.11 Credit card APRs are only a maximum of 36%, which is extremely high.
Because the interest rates on payday loans are so high, many consumers struggle to pay them off within the allotted time frame. Most payday lenders give borrowers two to four weeks to repay them and many struggle to do so.
When you can’t repay a payday loan immediately, you can refinance it which will add more fees. It’s not uncommon for people to take months to repay a payday loan, often racking up hundreds of dollars in interest. The Alabama Banking Department said that, “More than half of those borrowers (54 percent) paid more in interest and fees that the original amount of the loan.”12
54 percent of Alabama payday loan borrowers pay more in interest and fees than the amount of the original loan.12
“I felt exploited but the only thing I could do was continue to pay because I didn't have any other resources."
A PERSONAL ENCOUNTER WITH PAYDAY LOANS IN ALABAMA
By the third or fourth time you realize this is a never-ending cycle. You keep coming back, but not getting anywhere
One problem with payday loans is that it creates a cycle of poverty and debt that can be almost impossible to get rid of. Sometimes it takes help from an outside source.
A story in an Alabama newspaper described how a church in Birmingham paid off payday loans for 48 people, helping them get back on their feet. In total, the church paid $41,000. According to the article, “‘It’s kind of a ticking time bomb with high interest rates,’ Senior Pastor Van Moody said… “That’s why many people never get out.’”
Two of the people whose loans were paid off have implemented better savings habits to prevent them from needing payday loans again. One woman said she took out payday loans because she was struggling to pay off her credit card debt. Even though she was earning enough money to provide for herself, she relied on credit cards to buy whatever she wanted.
“By the third or fourth time you realize this is a never-ending cycle,” she says in the article. “You keep coming back, but not getting anywhere.”
Another man who had his payday loans taken care of borrowed the money after facing some major health problems. Even though the man was working two part-time jobs, he could not find the funds to pay off his payday loans.
“I felt exploited but the only thing I could do was continue to pay because I didn’t have any other resources,” he said.13
- Legal Status:Legal
- Payday Transactions:2 millionpayday loans in 2015 - each borrower takingout8 loans each
- Payday Fee per $100:$17.50
- % of Customers Refinancing:66%
- Average Loan Size:$326 - average fee of $56
- Maximum loan amount and interest rate:$500 and 456%
- Maximum annualinterest rate:456%
- CitySpecific Regulations:747licensedpayday lenders in 2016 - downfrom 1,100 in 2015, 18 Maximum limit of $5,001
Huntsville Payday Loan News
- In 2016, the Alabama House committee approved a bill that would lengthen the payday loan term to 28 days, from the current 10-day rule. It would also decrease the maximum interest rate to 15% for the month (currently at 17.5%). These two rules would have cut the amount of fees in half. But the law did not pass.13
- An earlier version of the bill that made it through the Alabama Senate would have instituted a 7% cap and would have extended the minimum payoff term to six months, giving borrowers a much longer length of time to repay. The more time a consumer has to repay a payday loan, the more likely it is they’ll avoid extra fees. When a payday loan has to be repaid within 14 days, it doesn’t give the borrower enough time to gather the funds. Every time they roll over the loan, they have to pay new fees.
Title Loans in Huntsville, Alabama
While payday loans are dangerous for consumers and can devastate struggling families, title loans are an arguably bigger threat. A title loan is a loan made to a consumer in exchange for giving provisional custody the car title to the lender.
The maximum payday loan amount in Alabama is $500, but many people find that they need more than that to stay afloat. So they turn to title loans. Most people can get at least $1,000 for their car, and some even several thousand.
Unfortunately, when a title loan is made, the person is taking the risk that if they miss a payment or can’t afford to keep paying, they’ll have to surrender possession of their vehicle.
According to a report from the Pew Charitable Trust14, which included borrowers from Birmingham, Houston and St. Louis, about a third of people who took out title loans only owned one car. For them, losing access to that vehicle could leave them without a way to get to work or take their children to school. It can lead to them losing their job, their apartment or becoming homeless.
Title loan companies are prevalent in Huntsville, where they do about $357 million15 worth of business a year or 152,54416 transactions in 672 title loan stores. The average loan size is more than $1,000 and the monthly interest rate is 25% or more than 300% APR.
One of the most disturbing features of title loans in Alabama is that the lender is allowed to repossess the vehicle, sell it and keep all the profits, even if it’s more than what the borrower owes. Alabama is only one of two states with this rule and it’s one that makes title loans even more profitable for lenders, to the detriment of honest consumers.
Another distinction that the Yellowhammer State has is that it leads the country in title-loan outlets.17 This is even more shocking when you consider that only 16 states in the country allow title loans, specifically because of their predatory nature.
Nationally, one in five title loan borrowers lose their cars.
A Personal Encounter with Title Loans in Huntsville, Alabama
[Repaying the title loan] been a burden. Find some other way, if you can
While many people assume that anyone who takes out a title loan is someone who didn’t try hard enough to find another source of income, most of the time, borrowers are just ordinary folks trying to make ends meet. When they take out a title or payday loan, they often don’t realize what they’re signing up for.
That’s what happened to Frances Beck,18 a single mother and college student trying to finish up her degree. While she was working to support herself, her college required that she take an unpaid internship to fulfill the requirements of her degree. Unfortunately, she didn’t have enough money left to pay her bills.
So she went to a title lender who gave her $3,200 for her vehicle, a huge sum for Beck. Unfortunately, she quickly discovered that her payments were all going toward interest and she couldn’t afford to repay the loan in full. She had to keep rolling the loan over. She paid more than $2,000 in interest without making a dent in the $3,200 in principal.
In the end, a professor of hers paid off the sum for her and allowed her to repay him slowly. She says she was too proud to ask for help in the first place, but became desperate when it seemed like she’d never be able to repay the title lender.
Now she tells other people to avoid title loans if they can and to find another outlet. Other options include borrowing funds from family or friends, taking out a personal loan from a traditional lender or taking on a temporary side hustle if possible.
“It’s been a burden,” she said. “Find some other way, if you can.”18
This story proves how one person could be doing everything possible to be a good borrower and still not be able to stay on top of their payments.
- Legal Status:Legal
- Auto-Title Loan Transactions inAlabama:$357 million 23 or 152,54424 in 672 title loan stores
- Feeper$100:25% per month
- % of Customers Refinancing:n/a
- AverageLoan Size:More than $1,000
- Repossession Rate:1 in 5 nationally
- Total cartitleloan fees:300% APR
- Repossessions (transactions per repossession):n/a
- CitySpecific Regulations:Currently, title loans are governed by the Pawnshop Act, which allows 300 percent annual interest rates
What Lawmakers in Alabama Are Doing about Payday and Title Loans
“I know somebody is going to pitch a fit about it. I don't know where usury starts, but I think we're way beyond that line with 300 and 400 percent interest."
The most disappointing part of the payday and title loan history in Alabama is that the state used to have strict interest rate regulation for payday lenders. In 2002, the legislature increased the maximum APR to 190% and a year later the Deferred Presentment Act changed the APR to its current rate of 456%.
State Sen. Scott Beason called the predatory loans usury, which is a term referring to charging extremely high rates for loans. In a 2014 article from an Alabama newspaper, he said, “I know somebody is going to pitch a fit about it. I don’t know where usury starts, but I think we’re way beyond that line with 300 and 400 percent interest.”
Since Alabama lawmakers loosened regulation on these lenders in the early 2000s, rates have increased. Many claim that without these outlets residents in Alabama would struggle to pay their bills and remain financially stable. In fact, it is because of these lenders that citizens lose their cars and find themselves trapped in a cycle of debt.
Protecting Consumers from Payday and Title Loans in Huntsville Alabama
While payday and title loan companies are allowed to do business in Huntsville, that doesn’t mean they always act according to the letter of the law. In the past, many companies have been reprimanded or even shut down because they were charging more money than legally allowed. Some try to enforce rules that aren’t in the contracts that consumers sign while others deliberately mislead consumers.
If you think you’ve been ripped off by a payday or title lender in Huntsville, you’re encouraged to report it to the state. You can file a complaint about them, which may start an investigation. If you’d like to file a complaint against a payday or title lender in Huntsville, 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 Huntsville. These include the following:
When you call one of these organizations, tell them exactly what your problem is and what you need help with. Because these are mostly nonprofits run by volunteers, it might take some time for them to reach your case. Don’t give up.
According to the Pew Charitable Trust, the groups most likely to borrow a payday loan are renters, African Americans, those earning below $40,000 annually, those separated or divorced, and those without a college degree.19
Why Payday and Title Lenders Thrive in Huntsville, Alabama
A study from the Pew Charitable Trust found that, “However, after controlling for other characteristics, there are five groups that have greater odds of having used a payday loan: renters, African Americans, those earning below $40,000 annually, those separated or divorced, and those without a college degree.”19
As stated earlier, the median income in Huntsville is far less than the average income of the rest of the country, which plays a huge part of why so many residents find themselves taking out payday loans. The poverty rate in Huntsville is also higher than the average poverty rate in America.
More data shows that, “Black or African American is the most likely racial or ethnic group to be impoverished in Huntsville, AL.”20 The effects of the Civil War and Jim Crow laws still linger in the south and especially in states like Alabama, which makes it a perfect breeding ground for payday lenders.
Black or African American is the most likely racial or ethnic group to be impoverished in Huntsville, AL.
Outside Help for Payday and Title Loans in Huntsville, Alabama
While payday and title lenders have a strong foothold in the Huntsville area, there are also many organizations devoted to serving the public. Here are a few of them:
- Huntsville Community Development: This organization provides first time homebuyer programs as well as repair programs for people who are already homeowners. These types of programs can help people become homeowners which can increase financial stability and generational wealth, a huge problem in low-income communities.
- Community Action Partnership Huntsville/Madison and Limestone Counties: This local organization provides a variety of financial programs including financial literacy help, credit counseling, foreclosure avoidance, affordable housing, first-time homebuyer programs and more. They have several locations in the local area, making them easy to find no matter where you live in Huntsville. Classes are available on a regular basis and the schedule is posted on the website.
- Huntsville Assistance Program: This community program brings together a variety of services including rehabilitation, financial and marital. This is a religious-based organization, but you don’t necessarily need to be a church member to participate.
Regulating Auto Loans in Alabama
When people ask why Alabama has so many issues with title loans, the answer is easy: the lenders line the pockets of the legislature. “For instance, in the Alabama Senate, banking committee members collectively received more than $116,000 in the last election cycle from the lending industry. Every member got something, although some got more than others,” a 2015 article from the Huntsville Times said.21
Members on the Senate also received thousands of dollars including those on the Financial Services Committee. When a proposal to limit how much title lenders could receive after repossession came up, it had more than half the support from the House. But still, it didn’t make it out of committee.
Concerned citizens should call their representatives and tell them that they want stronger regulation regarding title and payday loans. They should also write op-eds to local publications denouncing politicians who take money from these lenders while pretending to serve constituents who are harmed by their practices. When more people know about their hypocritical policies, these lawmakers will have to face the public.
Guides to Payday and Title Loans in Alabama Cities
You know payday and title loans in Huntsvielle are a problem. But what about other cities in Alabama?
Check out these payday and title loan guides for the following cities in Alabama…
 “Huntsville, Alabama.” Wikipedia. Accessed on December 28, 2017 from https://en.wikipedia.org/wiki/Huntsville,_Alabama
 “Quick Facts Huntsville, AL.” U.S. Census Bureau. Accessed on December 28, 2017 from https://www.census.gov/quickfacts/fact/table/huntsvillecityalabama/AGE295216
 “Huntsville, AL Economy at a Glance.” Bureau of Labor Statistics. Accessed on December 28, 2017 from https://www.bls.gov/eag/eag.al_huntsville_msa.htm
 “Huntsville, AL Economy.” Sperling’s Best Places. Accessed on December 28, 2017 from http://www.bestplaces.net/economy/city/alabama/huntsville
 “Living Wage Calculation for Huntsville, AL.” Living Wage Calculator. Accessed on December 28, 2017 from http://livingwage.mit.edu/metros/26620
 Demographics. “The Big Picture.” Accessed on December 28, 2017 from http://bigpicturehuntsville.com/plan/demographics/http://www.businessinsider.com/us-census-median-income-2017-9
 Indebtedness of Madison County. MadisonCountyAL.gov. Accessed on December 28, 2017 from http://madisoncountyal.gov/home/showdocument?id=1057
 “McDonalds’ vs. Payday Lenders” California State University Northridge. Accessed February 13, 2017. http://www.csun.edu/~sg4002/research/mcdonalds_by_state.htm
 Berte, Neal. “Alabama’s toxic lending problem: Who cares?” AL.com. Accessed on December 28, 2017 from http://www.al.com/opinion/index.ssf/2017/05/alabamas_toxic_lending_problem.html.
 Johnson, Roy. “A year after church erases payday loans, borrowers share lessons learned; more state action needed” AL.com. Accessed on December 28, 2017 http://www.al.com/opinion/index.ssf/2017/03/a_year_after_church_erases_pay.html.
 Cason, Mike. “Alabama House committee approves lighter version of payday loan reform.” AL.com. Accessed on December 28, 2017 http://www.al.com/news/index.ssf/2016/04/alabama_house_committee_approv_7.html.
 Bourke, Nick. “Auto Title Loans: Market practices and borrowers’ experiences.” PewTrusts.org. Accessed on December 28, 2017 http://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf
 Montezemolo, Susanna. “Car-Title Lending: The State of Lending in America & its Impact on US Households.” RespopnsibleLending.org. Accessed on December 28, 2017 http://www.responsiblelending.org/state-of-lending/reports/7-Car-Title-Loans.pdf
 Izor, Chris. “VIEWPOINTS: Alabama leads nation in car-title loan outlets.” Blog.AL.com. Accessed on December 28, 2017 http://blog.al.com/birmingham-news-commentary/2012/09/viewpoints_alabama_leads_natio.html.
 Bourke, Nick. “Payday Lending in America: Who Borrows, Where They Borrow, and Why.” The Pew Charitable Trusts. Accessed on December 28, 2017 http://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/pewpaydaylendingreportpdf.pdf
 “Data USA: Huntsville, AL.” DataUSA.io. Accessed on December 28, 2017 https://datausa.io/profile/geo/huntsville-al/#category_heritage