In a setback for Alabama borrowers, Senate committee blocks payday lending reform bill

Nearly three in four Alabamians support a strict 36% interest rate cap on payday loans. But public sentiment wasn’t enough Wednesday to convince a state Senate committee to approve even a modest new consumer protection.

The Senate Banking and Insurance Committee voted 8-6 against SB 58, also known as the 30 Days to Pay bill. This proposal, sponsored by Sen. Arthur Orr, R-Decatur, would give borrowers 30 days to repay payday loans. That would be an increase from as few as 10 days under current state law.

The annual percentage rate (APR) for a two-week payday loan in Alabama can climb as high as 456%. Orr’s plan would cut the APR by about half and put payday loans on a cycle similar to other bills. This wouldn’t be comprehensive payday lending reform, but it would make life better for thousands of Alabamians.

About one in four payday borrowers in our state take out more than 12 loans per year. These repeat borrowers pay nearly half of all payday loan fees assessed across Alabama. The 30 Days to Pay plan would give these households a little breathing room to avoid spiraling into deep debt.

None of those facts stopped a majority of Banking and Insurance Committee members from kneecapping SB 58. The committee canceled a planned public hearing without advance notice, even though people drove from as far away as Huntsville to testify in support. Then the committee rejected the bill on a day when Orr was unavailable to speak on its behalf. Sen. Tom Butler, R-Madison, did an admirable job of presenting in Orr’s place.

The ‘no’ vote and what’s next for payday lending reform

Here’s how the committee voted on SB 58:

Voted No
Sen. Chris Elliott, R-Fairhope
Sen. Steve Livingston, R-Scottsboro
Sen. Randy Price, R-Opelika
Sen. Clay Scofield, R-Guntersville
Sen. Shay Shelnutt, R-Trussville (chairman)
Sen. Bobby Singleton, D-Greensboro
Sen. Tom Whatley, R-Auburn
Sen. Jack Williams, R-Wilmer (vice chairman)

Voted Yes
Sen. David Burkette, D-Montgomery
Sen. Donnie Chesteen, R-Geneva
Sen. Andrew Jones, R-Centre
Sen. Dan Roberts, R-Mountain Brook
Sen. Rodger Smitherman, D-Birmingham
Sen. Jabo Waggoner, R-Vestavia Hills

Absent
Sen. Will Barfoot, R-Montgomery

Alabamians should be able to rely on legislators to protect their interests and implement policies reflecting their values and priorities. Sadly, the Banking and Insurance Committee failed in those duties Wednesday. But one disappointing vote didn’t change the need for meaningful protections for Alabama borrowers. And it won’t stop Alabama Arise’s work to make that happen. We’ll continue to build pressure for payday lending reform in communities across the state.

In the meantime, we’re pleased to see bipartisan support in Congress for meaningful change at the federal level. The Veterans and Consumers Fair Credit Act (HR 5050) would set a nationwide 36% rate cap on payday loans. That would allow all Americans to benefit from protections already in place for active-duty military members and their families. And it would ensure a short-term loan wouldn’t become a sentence to months or years of deep debt.

Click here to contact your U.S. House member about HR 5050.

Arise legislative recap: Feb. 7, 2020

The Alabama Legislature’s 2020 regular session has begun, and we’re excited about the opportunities ahead to make life better for struggling Alabamians. Arise’s Pres Harris explains why we need you with us at Legislative Day on Feb. 25. She also highlights some early progress on payday lending reform.

Arise 2020: Our vision for a better Alabama

Alabama Arise members have worked for more than three decades to build a brighter, more inclusive future for our state. And as the Legislature’s 2020 regular session starts Tuesday, we’re proud to renew that commitment.

Below, Arise executive director Robyn Hyden highlights some key goals for the session, including Medicaid expansion and untaxing groceries.

How you can make a difference

Together, we can turn our shared vision for a better Alabama into a reality. Here are three ways you can help:

(1) Become an Arise individual member. Numbers matter. The more members we have, the louder our voice for change is at the State House. If you’re not yet an Arise member, click here to become one today. If you’re already a member, please ask your friends and neighbors to join us as well!

(2) Talk to your legislators. Make sure your lawmakers know where you stand on our issues. Click here to sign up for our action alerts. And if you can, come meet your lawmakers in person at Arise’s annual Legislative Day on Feb. 25 in Montgomery. Click here to pre-register before Feb. 14.

(3) Spread the word about our issue priorities. The more people learn about our movement, the more support we gain. Read more about our 2020 issue priorities and share this information with your friends:

Together, we can make Alabama a place where everyone’s voice is heard and everyone has the opportunity to reach their full potential. Together, we can build a better Alabama!

Arise 2020: Stop the debt trap for Alabama payday borrowers

A small loan shouldn’t be a sentence to months or years of deep debt. Everyone who needs to borrow money should have a reasonable pathway to repaying a loan without excessive costs. But in Alabama, high-cost payday loans cost struggling people tens of millions of dollars every year.

As our recent report with Alabama Appleseed shows, the industry profits off financial desperation. Two-week payday loans with annual percentage rates of up to 456% (not a misprint, unfortunately) trap many Alabamians in debt cycles they cannot escape. And Alabama’s lack of consumer protections gives those borrowers no reasonable path out of that debt trap.

There’s a better way. Alabama Arise supports 30 Days to Pay legislation to help the people injured most by these harmful practices. This proposal would give borrowers 30 days to repay payday loans, putting them on a cycle similar to other bills.

This change would make life better for thousands of Alabamians. About one in four Alabama payday borrowers take out more than 12 loans per year. Because the loans are so short in duration – as few as 10 days – these repeat borrowers pay nearly half of all payday loan fees assessed across the state. The 30 Days to Pay plan would give these borrowers a little breathing room to avoid spiraling into deep debt.

We need you with us as we push for common-sense changes to protect borrowers. Please join Arise or renew your membership today to add your voice to our chorus for change. Together, we can build a better Alabama!

Alabama Arise members vow to renew ‘untax groceries’ push in 2020

Ending the state sales tax on groceries is one of the top goals on Alabama Arise’s 2020 legislative agenda. Nearly 200 Arise members picked the organization’s issue priorities at its annual meeting Saturday in Montgomery. The seven issues chosen were:

  • Tax reform, including untaxing groceries and ending the state’s upside-down deduction for federal income taxes, which overwhelmingly benefits rich households.
  • Adequate budgets for human services like education, health care and child care, including Medicaid expansion and investment in home visiting services for parents of young children.
  • Voting rights, including creation of automatic universal voter registration and removal of barriers to voting rights restoration for disenfranchised Alabamians.
  • Payday and title lending reform to protect consumers from getting trapped in deep debt.
  • Criminal justice debt reform, including changes related to cash bail and civil asset forfeiture.
  • Death penalty reform, including a moratorium on executions.
  • Public transportation, including state investment in the Public Transportation Trust Fund.

“We believe in dignity, equity and justice for all Alabamians,” Alabama Arise executive director Robyn Hyden said. “And we believe our 2020 issue priorities would break down policy barriers that keep people in poverty. We must build a more inclusive future where everyone can prosper.”

Why Alabama should untax groceries

The state grocery tax is particularly harmful for Alabamians who struggle to make ends meet. The tax adds hundreds of dollars a year to the cost of a basic necessity. And most states have abandoned it: Alabama is one of only three states with no sales tax break on groceries.

Alabama is also one of only three states with a full income tax deduction for federal income taxes (FIT). For those who earn $30,000 a year, the deduction saves them about $27 on average. But for the top 1% of taxpayers, the FIT break is worth an average of more than $11,000 a year. Ending the FIT deduction would allow Alabama to remove the sales tax on groceries and still have funding left over to address other critical needs.

The grocery tax and FIT deduction are two key factors behind Alabama’s upside-down tax system. On average, Alabamians with low and moderate incomes must pay twice as much of what they make in state and local taxes as the richest households do.

“By untaxing groceries and ending the FIT deduction, lawmakers can make Alabama’s tax system more equitable for everyone,” Hyden said. “They can strengthen state support for K-12 and higher education. And they can make it easier for struggling families to put food on the table. This is an opportunity to make life better for everyone in our state, and the Legislature should do it.”

Learn more about Arise’s 2020 issue proposals

Grassroots democracy will be on display when Alabama Arise members choose our 2020 issue priorities at our annual meeting Sept. 7 in Montgomery.

The following proposals will be up for a vote for our 2020 legislative agenda.

Below, you’ll find member groups’ summaries of their new and modified proposals. And you’ll find our policy staff’s overviews of the current issue priorities and our two permanent priorities: tax reform and adequate state budgets. We hope to see you in September as we gather to renew our shared commitment to building a better Alabama for all!

New issue proposal

Housing Trust Fund revenue

Submitted by Gordon Sullivan, Low Income Housing Coalition of Alabama (LIHCA)

LIHCA thanks Alabama Arise and its members for supporting the Housing Trust Fund in 2018 and previous years. Our combined efforts resulted in social and political momentum to secure dedicated revenue for the Alabama Housing Trust Fund (AHTF)! We are here to ask for your continued support of the AHTF and help in securing dedicated revenue for the fund in 2020.

We believe safe, decent and affordable housing is a basic human right. Hard-working Alabamians should be able to pay rent and still be able to put food on the table. Unfortunately for many Alabamians, finding a safe and affordable home is only a dream. Alabama is in a housing crisis, with a lack of nearly 70,000 rental homes for folks surviving on minimum wage and fixed incomes.

Folks making minimum wage have to work 82 hours a week to afford a market-rate two-bedroom apartment. By doing so, they miss out on family suppers and Little League, because there simply aren’t enough hours in the day. Every child deserves a safe place to call home and a chance to have those who love them help with homework and read bedtime stories.

The AHTF created a fund to construct, rehabilitate and maintain homes for low-income households. Though the AHTF was created in 2012, it was enabling legislation and did not come with funding. That means we can’t create any new or rehabilitate any existing homes or address housing problems related to natural disasters. That is why LIHCA will seek dedicated revenue for the AHTF in 2020.

Proposed legislation to fund the AHTF

The bill, sponsored by Rep. Neil Rafferty, D-Birmingham, would increase the mortgage record tax from 15 cents to 20 cents for every $100 of a mortgage. This would put approximately $15 million per year in the AHTF. This type of revenue is a common funding source for housing trust funds across the country. In Alabama, this tax has not been increased since it was enacted in 1935.

We know that two-thirds of Alabamians (67%) see the lack of affordability as a problem in our state and that a strong majority (63%) of Alabamians are ready for state action to increase housing opportunities for households priced out of the market. Building on the momentum of previous years, we believe attaining bipartisan co-sponsors and endorsements from influential groups throughout the state is possible in 2020.

With the creation of new affordable homes in Alabama, families will begin to achieve economic stability. Communities will reduce blight. And the state will see an economic impact of nearly $1 billion over 10 years.

The dedicated revenue bill supports Arise’s values and its membership’s vision for addressing poverty in Alabama by investing in communities and helping low-income households access safe and affordable homes. The dedicated revenue bill will provide $15 million per year to create and rehabilitate homes for those in need. We have been successful in building momentum with Arise’s support in past years. Let’s work together to finish what we started!

Modified issue proposal

Voting rights

Submitted by Scott Douglas and Tari Williams, Greater Birmingham Ministries, and Ned Freeman, Birmingham Friends Meeting (Quakers)

Let’s build on Arise’s commitment to voting rights, continuing to prioritize automatic voter registration (AVR) and focusing on restoration of voting rights for Alabamians affected by felony disenfranchisement. Under AVR, Alabamians would be registered to vote by default, without having to register themselves, because the state already has the necessary information. And restoring voting rights for everyone would affirm basic ideals of democracy.

Historically, Alabama has been a leader among states with the most severely punitive disenfranchisement laws. These laws, with their blatantly racist history, have kept African Americans from the polls in enormous – and enormously disproportionate – numbers. Of the more than 280,000 disenfranchised felons in Alabama, nearly 150,000 are black, according to the Sentencing Project. That means that disenfranchised felons make up more than 15% of the state’s voting-age African American population.

Alabama’s felony disenfranchisement policies have disparate impact on individuals convicted of felonies who are poor, black or both. Therefore, we propose the introduction of legislation that will (a) remove the financial barrier of requiring payment of all fines, fees and/or restitution and (b) restore voting rights to individuals while on probation and parole. This legislation is not cost-prohibitive, may take one to three years to pass because of upcoming elections and is not potentially divisive for Arise members.

Alabama’s disenfranchisement laws have fostered an underclass of tens of thousands of people who are unable to vote because they do not have enough money. In 1964, the 24th Amendment abolished the poll tax, but to this day in Alabama, money keeps a disproportionate number of people away from the ballot box. People should not be barred from voting solely because they are unable to pay back their fines, fees and restitution.

Restoring voting rights to rebuild community ties

If we truly want people convicted of felonies to re-engage with society, become rehabilitated and feel a part of a broader community (thus creating incentives not to recidivate), then our state should do everything possible to reincorporate these individuals into mainstream society. In terms of being a just and even-handed society, it is not fair if thousands of people are unable to regain their voting rights because they are poor. People who are wealthy or have access to money are able to repay their financial debts. But poor people (the vast majority of people who have felony convictions) are not. This is an unjust system.

Individuals on probation and/or parole are actively working on retaining and/or rebuilding their ties to their families, employers and communities. Allowing them to reestablish ties as stakeholders in political life provides an analogous and important reintegrative purpose and promotes public safety.

Felony disenfranchisement provisions, especially in the South and particularly in Alabama, date back to the post-Reconstruction era. Their intent was always clear and explicit: to disenfranchise African Americans and preserve white domination.

Restoring voting rights and automatically registering voters is good policy. Arise prioritizing these policies also has the immediate benefit of putting a positive voting rights agenda in the public debate during an era when voting has been under attack.

Current Arise issue priorities

Criminal justice debt reform

Court fees and fines impose heavy burdens on many struggling families. Driver’s license suspensions over unpaid fines can cause Alabamians with low incomes to lose their jobs. Cash bail for minor offenses can imperil families’ economic security. And multiple fees can stack up, making it impossible to move on from a conviction because consequences never end. In Alabama, people are subject to 63 separate fees in the criminal justice system – including even a $1 fee for paying fee installments.

This year, Arise emphasized reforming civil asset forfeiture within the umbrella of criminal justice debt. This practice allows police to seize cash or other assets if they find probable cause to link the property to a crime. But the process doesn’t require a criminal conviction, or even a charge.

Originally intended to fight drug kingpins, civil asset forfeiture today sees heavy use against people accused of minor crimes. Underfunded law enforcement agencies have incentives to use forfeiture because they are often able to keep much of the seized property.

A philosophically diverse coalition is seeking to end forfeiture abuses in Alabama, and reform efforts already have borne fruit. In 2019, comprehensive reform efforts moved quickly at first but then slowed amid law enforcement opposition. Eventually, the Legislature passed incremental reform, mandating public reporting of property seizures. Public opinion strongly favors further change, and momentum continues to build.

Death penalty reform

Alabama’s capital punishment system is unreliable and racist. Our state hands down nearly double the national average of death sentences. We are the only state with no state-funded program providing legal aid to death row prisoners. And state laws give insufficient protection against executing people who were mentally incapable of understanding their actions.

Arise has worked for increased transparency on the lethal injection procedures and a three-year moratorium on executions. Bills were introduced but did not move in recent years. In 2017, the Legislature voted overwhelmingly to bar judges from imposing death sentences when a jury recommends life without parole. But the judicial override ban is not retroactive. About a fifth of the 175 people on Alabama’s death row received death sentences against the jury’s recommendation. We would like to enforce the override ban retroactively.

Alabama’s death penalty practices reflect deep racial inequities. Before the 2017 ban, judges imposed death against a jury’s determination more often when victims were white. The state argued as recently as 2016 that it should be allowed to kill a prisoner even when a judge explicitly cited race at the sentencing hearing. Much work remains to modernize Alabama’s justice system and prevent erroneous executions.

Payday and title lending reform

Every year, high-interest loans trap thousands of struggling Alabamians in a cycle of deep debt. Payday loans are short-term (usually two-week) loans charging high annual percentage rates (APRs), up to 456%. Auto title loans charge up to 300% APR and also carry the risk of repossession of the family vehicle.

These high-cost loans strip wealth from borrowers and hurt communities across Alabama. Payday lenders are on track to pull more than $1 billion in fees out of Alabama communities over the next decade, with most of that money flowing to out-of-state companies. Predatory lending practices disproportionately target people of color and exacerbate the economic challenges in struggling rural and urban communities.

Arise is part of a statewide coalition promoting interest rate caps on payday and title loans. In 2019, we supported legislation to give payday borrowers a 30-day repayment period – the same as other monthly bills – up from as few as 10 days now. But the bill didn’t move, despite the Senate Banking Committee chairman’s assurances that he would allow a vote.

The 30 Days to Pay bill’s sponsor – Sen. Arthur Orr, R-Decatur – is working to ensure it will receive consideration early in the 2020 regular session. Heavy citizen engagement will be needed to overcome the lending lobby.

Public transportation

Our state’s jumble of local transportation systems fails to meet the needs of many people in rural, suburban and urban areas. Alabama is one of just five states with no state public transportation funding. For many low-income workers, seniors and people with disabilities, the transit gap is a barrier to daily living. Many folks can’t get to work, school, the doctor’s office or other places they need to go in a reasonable amount of time.

Alabama took a good first step in 2018 by creating a state Public Transportation Trust Fund. But the law did not allocate any state money, even though it would be a high-return investment in our future. Each $1 million invested in public transportation creates 41 full-time jobs, research shows. Those jobs would fuel economic growth and improve quality of life in our communities.

Appropriations for the state trust fund would be eligible for a 4-to-1 federal match. So by not funding public transit, Alabama leaves millions of federal dollars on the table each year.

The General Fund remains a key potential source for state public transit funding. Greater Birmingham Ministries’ Economic Justice/Systems Change group also has urged Arise to support legislation in 2020 to allow Alabamians to dedicate part of their state income tax refund to public transit. The state already allows voluntary contributions for mental health care, foster care and other public services.

Compiled by Dev Wakeley, policy analyst

Permanent Arise issue priorities

Adequate state budgets

Our state’s upside-down tax system starves state budgets of money needed to invest in our shared future. Alabama provides almost no state money for child care. In-home services for parents of at-risk children receive a paltry $3 million a year, far less than other states. And young adults struggle to afford rising tuition and fees at universities and two-year colleges.

Alabama must address comprehensive sentencing and prison reform in 2020. The General Fund budget will need more revenue to pay for stronger investments in mental health care, substance use treatment, drug courts, community corrections and more corrections officers.

Arise’s health care advocacy has three main goals: defend, reform and expand Medicaid. Our defense work this year focused on Alabama’s pending plan to impose a catch-22 work penalty, which would strip Medicaid from thousands of parents with extremely low incomes. Looking ahead, we expect a new push to cut Medicaid by block-granting federal Medicaid funds to states.

We’ve seen progress on Medicaid reform. The statewide Integrated Care Network (ICN) for long-term care launched last October. And the long-delayed regional primary care reform takes effect this October. Arise has recruited consumer representatives for the ICN governing board and all seven Alabama Coordinated Health Network (ACHN) boards. Next year, we’ll push for the next step: Medicaid expansion, which would benefit more than 340,000 Alabama adults.

Tax reform

Alabama’s tax system is upside down. The rich get huge tax breaks, while the heaviest tax burden falls on people with low and moderate incomes. High, regressive sales taxes on groceries and other necessities drive this imbalance. So does the state’s deduction for federal income taxes (FIT), a skewed break that overwhelmingly benefits wealthy people.

Arise has fought to end the grocery tax for more than a decade. The central challenge is how to replace the $480 million it raises for education. In 2020, we’ll intensify our efforts to show legislators the powerful link between untaxing groceries and ending the FIT deduction.

Alabama is one of only three states where filers can deduct all federal income tax payments from state income taxes. This tax break disproportionately benefits wealthy people, who pay more in federal income taxes and are more likely to itemize. Ending the FIT deduction would bring in enough revenue to untax groceries, fund Medicaid expansion and meet other critical needs.

Compiled by Jim Carnes, policy director, and Carol Gundlach, policy analyst

CFPB’s move to gut consumer protections shows need for state-level payday lending reform

The Consumer Financial Protection Bureau (CFPB) should serve consumers, not the industries it regulates. That’s why Alabama Arise submitted a comment last week objecting to the CFPB’s plan to reverse an important consumer protection. And that’s why Arise will continue to push for needed reforms at the Legislature.

The federal ability-to-repay rule, set to take effect in August, would require payday and title lenders to ensure borrowers could repay loans they take out. In 2017, the CFPB under then-director Richard Cordray created the rule to help shield consumers from getting caught in cycles of deep debt.

Like many state-level protections, the CFPB’s rule also aims to provide an escape valve for borrowers caught by predatory lenders. It would allow borrowers to repay the loan in installments by repaying a portion of the loan at a time and reborrowing the rest.

For many borrowers, that greater flexibility would lessen the damage from high-cost payday loans. Alabama allows lenders to charge annual percentage rates (APRs) of up to 456% on a two-week payday loan. The CFPB’s new protection wouldn’t reduce the absurdly high interest rates that payday loans carry. But it would provide a more realistic pathway out of debt for people who desperately need one.

Thousands of Alabamians took out 30 or more payday loans last year. That’s not a healthy borrowing pattern, and it doesn’t result from people borrowing for short-term emergencies. Nobody has 30 water heaters break in a year (despite what a flood of copycat comments might have you believe). The CFPB’s rule would help keep borrowers from becoming trapped in the debt cycle.

Foxes overseeing the henhouse

If Cordray were still running the CFPB, the original rule might be implemented this summer as scheduled. And that rule could shape a healthier lending market, free from many of the abuses pervading the payday lending industry.

Unfortunately for struggling borrowers, the CFPB’s leaders since 2017 have worked to undermine its foundations. During his time as acting CFPB director, Mick Mulvaney began the attempted rollback of the ability-to-repay rule, as well as other measures to weaken consumer protections. Industry groups have supported the repeal effort every step of the way.

Current director Kathy Kraninger has continued and fully endorsed Mulvaney’s approach. Kraninger said during her confirmation hearing last year that she couldn’t identify “any actions” of Mulvaney’s “with which I disagree.” Kraninger also couldn’t estimate or calculate the APR on a payday loan under questioning from U.S. Rep. Katie Porter, D-Calif., in March. It was a sad display from the head of an agency that’s supposed to stand up for consumers.

Alabama can’t rely on the federal government to protect consumers

The regulatory capture at today’s CFPB shows that we can’t wait for federal action to protect consumers. It’s up to the Alabama Legislature to limit exorbitant APRs on payday loans, and lawmakers have numerous options. Reform efforts have ranged from a 36% APR cap to a more modest plan that would give borrowers 30 days to repay loans, up from as few as 10 days now.

All these reform efforts have the support of a majority of Alabamians. But under pressure from the powerful payday lending industry, legislators keep killing these proposals in committee year after year.

The federal backslide on regulation of payday lenders is a significant barrier to a more reasonable lending environment. But it’s not the end of the story. Progress is possible at the state level, and it will require an overwhelming push from Alabamians demanding change. The path forward on payday lending reform begins with folks like you.

Federal ability-to-repay rule protects payday borrowers, Alabama Arise tells CFPB

Director Kathleen Kraninger:

I read with disappointment your recent proposal to rescind the thoroughly considered, factually grounded Consumer Financial Protection Bureau (CFPB) rule provision mandating ability-to-repay determinations by lenders offering payday, title and balloon loans. As a policy organization working to advance the public good in a state with wholly insufficient consumer protections for borrowers, Alabama Arise knows the CFPB’s payday lending rule would help thousands of people in Alabama, if left as written and implemented in good faith.

Astronomical and exploitative payday loan annual percentage rates (APR)[1] routinely trap borrowers in our state in inescapable debt cycles. Payday lenders have misled regulators and the public about the purpose of these loans since the day they were legalized in Alabama. Contrary to industry talking points, payday loans are not a short-term solution to emergencies. They are debt traps for people struggling to make ends meet, as the CFPB’s own 2014 report shows. A majority of payday borrowers in Alabama take out multiple loans every year. Thousands of borrowers in our state took out 30 or more payday loans last year.[2] Borrowing histories like that result from traps, not transactions between parties of equivalent power and legal sophistication.

For thousands of people who take out multiple loans a year, predatory loans are not an option. They are inherently destructive traps that destabilize families, and they destroy the lives of people throughout the United States who become trapped in intentionally created cycles of debt.

The American people overwhelmingly support regulation of payday loans. Eighty-four percent of Alabama respondents in a recent state survey[3] said they want significant reform to payday lending practices. Most Alabamians want to cap payday loan APR at 36 percent. That rate would be less than a tenth of the usurious 456 percent APR that Alabama allows on a 14-day loan, the most common loan period in our state. Further, a majority of the survey respondents said they want those reforms even if such changes cut into industry profits.

The Agency’s purported justification for rescinding the rule is a lack of data supporting the underwriting provision. The Agency bases this assertion on an arbitrary de-emphasis of the Mann study,[4] which was industry-funded yet nonetheless demonstrated that four in ten consumers had no knowledge of how they would repay loans. The Agency also de-emphasizes its own personnel’s expertise in determining the financial awareness of consumers.

The multi-page Agency justification for ignoring its own analysis could have been spun from a lending industry lobbyist. In it, the CFPB wrote, “Mann concluded that most borrowers anticipate that they will not be free of debt at the end of the initial loan term and instead will need to reborrow.” This sunny characterization of borrowers’ financial understanding ignores the 40 percent of borrowers who have no idea when they will escape the debt trap.

Moreover, the focused protections created by the CFPB’s rule have not yet been given a chance to work, even though the underwriting requirement falls short of the sweeping elimination of predatory loans the public wants. The Agency’s rhetoric surrounding this attempt to eliminate protections has relied heavily on the sort of talking points often repeated by the industry lobbyists we see lining the walls of the Alabama State House. Industry mouthpieces have claimed for years that regulation of any sort would bankrupt them. But reality shows these claims to be false. Procedural reform efforts focused on providing escape valves for trapped borrowers have not eliminated payday loans in the numerous states that have implemented them.[5]

The rule’s protections focus on borrowers who take out multiple loans over a short period and borrowers who spend much of their time in short-term loan debt. Lenders are conditionally exempt from the underwriting mandate for loans under $500, up to the third loan in a loan cycle. The rule is structured to prevent loan churn and stop cycles of debt. The payday lending business model relies on keeping borrowers in debt. One of the best ways to prevent that exploitation is to ensure that borrowers have a realistic way out of debt before they take out high-cost loans. The CFPB should protect borrowers, not the profits of an industry reliant on perpetuating human suffering to make its money.

Repeal of this protective provision would be a disservice to the fundamental mission of the CFPB. The Agency’s purpose is to protect consumers, not to clear the field of regulations to ensure lenders’ ability to prey upon on members of the public whose precarious financial positions leave them most vulnerable to predatory practices. The only support underlying the decision to eliminate this consumer protection is fanciful assertion by regulated parties that the regulatory costs of compliance would significantly damage their interests. Bald assertions of harm made by an industry with a history of operating in bad faith are wholly insufficient justification for an Agency rule. The CFPB should not engage in arbitrary determinations based on a dearth of evidence. Eliminating this protection is unjustified.

The CFPB’s rule in its current form would help mitigate the effects of the systematic exploitation of borrowers who can barely keep their heads above water. The ability-to-repay provision is not a complete reform of the usurious practices of predatory lending, but it helps rein in some of the worst abuses. Preventing lenders from issuing products structured to trap many borrowers in loans they are unable to repay is squarely within the Agency’s mission. The CFPB should implement the ability-to-repay rule as written. Anything less would be complicity in abusive practices and would be widely and correctly cited as an example of regulatory capture.

Footnotes

[1] Adam Hayes, Annual Percentage Rate (APR) Definition, Investopedia (2019), available at https://www.investopedia.com/terms/a/apr.asp (noting “[a]n annual percentage rate (APR) is the annual rate charged for borrowing,” and “[t]he formula for the Annual Percentage Rate (APR) is ((((Fees + Interest) / Principal) / [Number of days in loan term]) x 365) x 100”).

[2] Veritec Solutions, Report on Alabama Deferred Presentment Loan Activity For the Year Ending December 31, 2018 (2019).

[3] Public Affairs Research Council of Alabama, Alabama Public Opinion Survey (2018), available at http://parcalabama.org/wp-content/uploads/2018/09/PARCA-2018-Public-Opinion-Survey.pdf, 18.

[4] Ronald Mann, Assessing the Optimism of Payday Loan Borrowers, 21 Sᴜᴘʀᴇᴍᴇ Cᴏᴜʀᴛ Eᴄᴏɴ. Rᴇᴠ. 105 (2013), http://www.columbia.edu/~mr2651/AssessingPayday.pdf.

[5] See, e.g., Fla. Stat. § 560.404(22) (2018).

Arise legislative recap: May 10, 2019

The Consumer Financial Protection Bureau (CFPB) is threatening to reverse a rule that promotes financial security for borrowers across the country. This week, we look at the CFPB’s proposal to eliminate a requirement for payday lenders to determine whether borrowers have the ability to repay before lending to them. Arise’s Mike Nicholson discusses this proposed change ahead of the May 15, 2019, comment deadline.

 

Visit this link by May 15, 2019, to tell the CFPB to keep this important consumer protection intact.

Payday lending is crushing Alabama communities. Our new report offers solutions

Alabama has more payday and title lenders than hospitals, high schools, movie theaters and county courthouses combined. The industry churns a profit out of desperate, financially fragile borrowers. And unfortunately, Alabama’s weak consumer protections provide them with plenty.

We explore these problems in depth and offer policy solutions in “Broke: How Payday Lenders Crush Alabama Communities,” a comprehensive new report we co-released Thursday with Alabama Appleseed Center for Law and Justice. “Broke” covers the history of these loans, explains current practices and reviews alternative lending options. And the report looks at how the 30 Days to Pay bill and other reforms would ease financial strain for hundreds of thousands of Alabamians.

“Broke” introduces you to some of the faces behind the debate. It contains an interview with a payday borrower who ended up homeless. It recounts how another borrower was driven into destitution after taking out a payday loan to pay for a family member’s funeral. And it shares the stories of many other Alabamians who were squeezed mercilessly by lenders no matter what hardships they were experiencing.

Click here to read the report highlights and executive summary. Or click the image to the left to read a PDF of the full report.

30 Days to Pay: A step in the right direction

Arise is supporting a bill that would help the people harmed most by the short-term nature of these loans. SB 75 and HB 258 would give borrowers 30 days to repay a payday loan. That’s a similar term as for mortgages and electrical bills.

About one in every four Alabama payday borrowers take out more than 12 loans per year. But those borrowers pay nearly half of all payday loan fees, just because the loans are so short in duration. These borrowers would gain a little breathing room with 30 days to pay, as compared to the current limit, which can be as few as 10 days.

The lending industry has jammed up reform efforts in committee for years. Only a strong push from everyday Alabamians can turn the tide. Please share this report on social media and tell your legislators we must reform payday lending in Alabama.