Payday Loans Under Siege in Alabama
Considering the numerous outcries against payday loans from federal agencies, consumer groups and others, it is not surprising that payday lenders are under siege in Alabama. Payday lending has been discussed in the Alabama legislature for several years, but during this year’s regular session, a bill to regulate the industry made greater progress than similar proposals have achieved in the past, according to the Arise Citizens’ Policy Project. The regular session ended without passage of the bill, but analysts expect that legislators will vote on the bill as soon as sessions resume.
Alabama Legislators Seek to Regulate Payday Lenders
The bill originated in the Alabama Senate, passing with an almost unanimous vote; the bill was then sent to the House Financial Services Committee. The committee made alterations that weakened the proposed regulations, which means that the Senate will have to vote on the revised bill. Due to the necessity of reconciling the two versions of the bill and the possibility that some compromises may need to be negotiated, the bill has been carried over to the next session.
What Alabama Legislators Propose
As revised by the House, payday lenders would be allowed to charge a fee of up to 15 percent, which is 2.5 percent less than the current cap. Loans must have terms of 28 to 45 days; current regulations call for terms of 10 days to one month. According to AL.com, the version of the bill that passed the Senate called for a cap of 7 percent monthly on the amount borrowed, and payday lenders would have had to allow a minimum of six months for borrowers to pay off the loan in installments.
New Bill Builds on Existing Mandatory Database
The proposed bill leaves the requirements for a customer database intact. According to the Birmingham Business Journal, Alabama law already limited borrowers to a maximum of $500 in payday loans whether in the form of one loan or multiple loans, but payday lenders had no method of verifying information. The State Banking Department proposed the creation of a database to monitor payday loans, receiving legislative approval for funding in 2013. Almost immediately, payday lenders sued to prevent the department from moving ahead with the database. After losing an appeal, the matter went to the Supreme Court of Alabama; in April 2015, the justices ruled that the department had the right to establish the database.
The database, which was established in August 2015, has provided some interesting statistics. Between its implementation and March 2016, more than 1.3 million payday loans were issued to approximately 208,000 unique borrowers. During this time, loans averaged $322, and the average term was less than 20 days. Based on the information provided by the database, committee members drafting the revised bill felt that establishing 28 days as the minimum loan term offered people who use payday loans a better chance to repay the loan without having to roll it over.
Obama Urged Payday Loan Regulations in Alabama
President Obama has been especially critical of payday lenders during his final term. In a speech given in Birmingham in March 2015, he stated that in Alabama, payday lenders are four times as numerous as McDonald’s restaurants. He defended the Consumer Finance Protection Bureau, or CFPB, and vowed to fight proposals that would eliminate the agency’s automatic funding. He also stated that he would veto any attempts to roll back the Consumer Protection Act. According to USA Today, Obama may have chosen the location for his speech because the first field hearing that the CFPB held on payday lending occurred in Birmingham in 2012.
Payday Lenders Raise Objections About the Bill
Payday lenders are concerned about the regulations contained in the pending bill. Max Wood, the president of one of the largest payday lending chains in Alabama, stated that his stores operate on a margin of less than 5 percent. In the aforementioned article in the Birmingham Business Journal, Wood said that the proposed bill will likely result in lost jobs and that with no viable alternatives, people who would have used a payday lender may turn to unregulated online lenders.
The industry’s primary objection to the creation of the database to monitor payday loans also involved online lenders. Since these lenders are not subject to Alabama’s regulations, the payday loans that they make are not recorded in the database. Therefore, there is no way for a lender operating a store in Alabama to verify whether the customer has outstanding loans with an online lender. Borrowers who have already taken out their maximum amount could apply for an online payday loan, placing stores physically located in Alabama at an unfair advantage in terms of ability to compete as well as risk assessment.
Knowledgeable Borrowers Make Better Decisions
Regardless of whether they are financing a car or searching for the best credit card, informed borrowers tend to make better decisions. The same is true for people who are considering a payday loan. The more that you know about payday loans, the more capable you are of determining whether they are right for your particular situation. You can find additional articles about payday loans at PersonalMoneyStore.com.