Issue: Payday & Title Lending Reform

A single decision by the Alabama Supreme Court may cut the number of payday lenders in the state by half. In a holding without a written opinion, the court affirmed Friday that the state Banking Department has the authority to require lenders to use a common statewide databaseto help enforce Alabama’s cap on total payday loan debt.

The case, Cash Mart, Inc., et al. v. Alabama State Department of Banking, was a challenge to the department’s regulatory authority. The Banking Department issued the database rule in light of the Legislature’s failure to pass the requirement in a statute.

Arise has long sought a statewide payday loan database to close a loophole that allows many payday borrowers to exceed the state’s existing $500 cap on payday loan debt. Without a common database as an enforcement mechanism, payday borrowers can go from store to store and rack up thousands of dollars of debt at annual interest rates of up to 456 percent. Creation of the database could shutter about half of Alabama’s payday loan storefronts, industry representatives have estimated.

The court’s ruling also eliminates the need to create a database by statute. HB 417, sponsored by Rep. Patricia Todd, D-Birmingham, would have required lenders to use a centralized database and won House committee approval earlier this month. Todd withdrew the bill Tuesday after the decision.

The Banking Department already has selected a vendor for the database and originally announced June 1 as the date for the system to go live. However, the department since has announced a delay in that date and has yet to announce a new one.

Arise and other consumer advocates will continue to push the Legislature to approve payday loan interest rate caps in Alabama.

By Stephen Stetson, policy analyst. Posted April 28, 2015.

Interest rates on payday loans in Alabama would fall by more than half under a compromise payday loan reform bill that won approval in an Alabama Senate committee Wednesday. SB 110, sponsored by Sen. Arthur Orr, R-Decatur, now awaits action by the full Senate.

Only one committee member – Sen. Cam Ward, R-Alabaster – voted against the bill. Sen. Trip Pittman, R-Montrose, abstained from voting.

Orr’s bill would change Alabama’s payday loan law to be similar to the one in Colorado, where the payday loan industry continues to exist but charges lower prices. “Colorado-style” reform caused substantial industry consolidation and made loans somewhat more affordable for borrowers. Orr’s bill would model Colorado’s law by extending the length of time that borrowers would have to repay their loans. Payday loans in Alabama are usually due in two weeks, and carry annual interest rates of up to 456 percent.

SB 110 is more complicated than the 36 percent annual interest rate cap that payday loan reformers have sought for years, and the allowable rates would be much higher than that. The cost of payday loans under Orr’s plan would vary, depending on the length of the loan and the amount (up to $500) borrowed. Though the finance charge would be capped at a 45 percent annual rate, additional fees would push the maximum allowable interest rate into triple digits. Using a similar framework, Colorado’s payday loan interest rates decreased from 339 percent a year to 188 percent a year.

Orr told the committee that his approach was an effort to bring some regulations to the industry by bringing down borrowers’ costs without putting the industry out of business. Orr’s message was one of seeking a regulatory “middle ground” between the status quo and a proposed 36 percent rate cap.

Arise continues to support capping interest rates on payday and auto title loans at 36 percent a year, but it will work to oppose any industry amendments that would weaken Orr’s compromise bill, ACPP executive director Kimble Forrister said. Legislation to cap interest rates on payday and title loans at 36 percent has not been filed yet, but advocates expect such bills to be introduced later this month.

Read the Montgomery Advertiser’s coverage for more on Orr’s bill and the committee’s debate.

By Stephen Stetson, policy analyst. Posted April 1, 2015.

A statewide payday loan database moved one step closer to becoming a reality Tuesday when an Alabama Senate committee voted 6-0 for it. HB 145, sponsored by Rep. Patricia Todd, D-Birmingham, now moves to the full Senate, which could vote on the plan later this week. The House voted 93-1 for the bill last week.

Committee chairman Sen. Slade Blackwell, R-Mountain Brook, described the bill as “non-controversial.” Still, after a series of questions from Sen. Roger Bedford, D-Russellville, members of the Senate Banking and Insurance Committee amended the bill to require that the database be competitively bid.

The amendment could slow the bill down if it wins Senate approval. HB 145 would have to return to the House because the language no longer would be identical to the version the House passed. The House either could accept the Senate’s changes or send the bill to a conference committee to resolve the differences between the two versions.

HB 145 would not reduce the annual interest rate that payday lenders can charge in Alabama from the current 456 percent APR. But a common database would make it possible to enforce a current state law that prohibits borrowers from taking out more than $500 in payday loans at any one time. Without a single statewide database, many borrowers can hop from storefront to storefront and take out $500 payday loans from each, racking up thousands of dollars of debt. The database would alert lenders when a borrower already had reached the $500 cap and prevent them from extending additional loans to that borrower.

The state Banking Department last year proposed regulations to create a common database, but some lenders sued to block the plan, claiming the department lacked the authority to do so. Todd’s bill would require lenders to submit information annually to the department, which many advocates say would greatly improve available data about the industry.

Lawmakers will return Wednesday for the 26th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Stephen Stetson, policy analyst. Posted March 18, 2014.

The Alabama House voted 93-1 Thursday for a bill to create a statewide common database of payday loans. HB 145, sponsored by Rep. Patricia Todd, D-Birmingham, now goes to the Senate.

Todd’s bill would make it easier to enforce a current state law that prohibits borrowers from taking out more than $500 in payday loans at any one time. Without a common database, many borrowers can hop from storefront to storefront and take out multiple $500 payday loans, racking up thousands of dollars of debt.

HB 145 would not reduce the annual interest rate that payday lenders can charge in Alabama from the current 456 percent APR. But a common database would alert lenders when a borrower already had reached the $500 cap and prevent them from extending additional loans to that borrower.

The state Banking Department last year proposed regulations to create a common database, but lenders sued to block the plan, claiming the department lacked the authority to do so. Todd’s bill would require lenders to submit information annually to the department, which many advocates say would greatly improve available data about the industry.

Lawmakers will return Tuesday for the 25th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Chris Sanders, communications director. Policy analyst Stephen Stetson contributed to this report. Posted March 13, 2014.

Nearly 100 Arise supporters gathered Thursday in Montgomery to urge reforms of payday and auto title lending in Alabama. Sen. Arthur Orr, R-Decatur, and Rep. Rod Scott, D-Fairfield, spoke at an Arise news conference to encourage advocates to push for their respective reform bills.

“There is no one in this state who does not have a friend or know someone with a friend who has been affected by these products,” Scott said of title loans. “They should not be allowed at these rates.”

Scott’s HB 406 would cap annual interest rates on title loans at 36 percent APR, down from the current 300 percent APR. Orr’s SB 410 would give borrowers more time to repay payday loans, which now carry annual interest rates of 456 percent APR, by extending loan terms to four months. (Most payday loans in Alabama are now two-week loans in practice.)

Orr’s bill also would create a statewide common database of payday loans. That would make it easier to enforce a current state law that prohibits borrowers from taking out more than $500 in payday loans at any one time. The state Banking Department last year proposed regulations to create a common database, but lenders sued to block the plan, claiming the department lacked the authority to do so.

SB 410 won committee approval Wednesday and could reach the Senate floor next week. Orr said changes to Alabama’s payday lending law have a real chance to be enacted this year. “In politics, many times it’s an incremental gain,” Orr said. “This year is really looking like a year when you will have made progress.”

Arise state coordinator Kimble Forrister thanked Orr and Scott for pushing their bills and said efforts to reform payday and title lending are gaining momentum statewide. Forrister pointed to the growing number of Alabama cities that have imposed moratoriums on new business licenses for such lenders, including Jasper just this week. He also noted the large number of lawmakers who are co-sponsoring SB 410 and HB 406. Nearly half of the Senate co-sponsors Orr’s bill, and more than half of the House co-sponsors Scott’s bill.

Scott urged advocates to remain steadfast. “We have to stay encouraged, but we also have to expand,” he said. “Where we are now is because of everyone’s effort. … No matter what happens, we’re not going to give up the effort to change these rates.”

Lawmakers will return Tuesday for the 23rd of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Chris Sanders, communications director. Posted March 7, 2014.

Enforcement of current Alabama law would be easier under a pared-down payday lending reform bill that emerged from a House committee Wednesday. Triple-digit annual interest rates on the loans would not change, however, under the new version of HB 145 that the House Financial Services Committee approved. The bill awaits consideration by the full House.

The committee substitute to HB 145, sponsored by Rep. Patricia Todd, D-Birmingham, removed language that would have capped the annual percentage rate (APR) on payday loans at 36 percent APR, down from the current 456 percent APR. The new version would require payday lenders to use a common statewide database to keep track of the high-interest loans.

Even with the removal of the interest rate cap, Todd touted the substitute bill as a step forward. “We think people won’t get into massive debt by shopping other places,” Todd said.

Current state law prohibits borrowers from taking out more than $500 in payday loans at any one time. But without a common database, many borrowers hop from storefront to storefront and take out multiple payday loans, racking up thousands of dollars of debt. A common database would alert lenders when a borrower already had received $500 and prevent them from extending additional loans. The state Banking Department last year proposed regulations to create a common database, but lenders sued to block the plan, claiming the department lacked the authority to do so.

Todd’s bill would require lenders to submit information annually to the Banking Department, which many advocates say would greatly improve access to data about the industry. With annual reporting requirements, consumer advocates could get a better understanding of the number of payday loans made each year in Alabama.

For more on the committee’s action on Todd’s bill, check out the Montgomery Advertiser’s coverage. The Legislature will return Wednesday afternoon for the 21st of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Stephen Stetson, policy analyst. Posted March 5, 2014.

Payday and auto title lending reform bills were dealt a serious blow in an Alabama House committee Wednesday. Members of the House Financial Services Committee sent the payday loan bill to a subcommittee and deferred action on the title loan bill. The moves came after seven people testified in support of the payday loan bill during a public hearing.

The decisions were frustrating to advocates pushing the bills, both of which would cap annual interest rates on payday and title loans at 36 percent APR. State law now allows payday lenders to charge up to 456 percent APR, while title lenders can charge up to 300 percent APR.

HB 145, sponsored by Rep. Patricia Todd, D-Birmingham, would cap the rate on payday loans and create a uniform statewide database of such loans to help ensure compliance with existing state law that allows borrowers to take out a total of no more than $500 of payday loans at one time.

HB 406, sponsored by Rep. Rod Scott, D-Fairfield, would cap the rate on auto title loans and require lenders who repossess and sell borrowers’ vehicles to return sales proceeds that exceed the amount owed and other reasonable expenses. More than half of the House’s members are co-sponsors of Scott’s bill.

The same House committee sent similar bills to a subcommittee last year. Those bills saw no further action.

Only one person testified against HB 145 on Wednesday. A payday loan store owner from Birmingham said his stores provided a needed service to borrowers who understood the risks. Seven other speakers braved inclement weather to testify in favor of the bill, but the panel was not persuaded to send the measure to the House floor for full debate.

Rep. Thad McClammy, D-Montgomery, did much of the talking during the hearing, wondering aloud about borrowers’ motivations to take out payday loans. He referred numerous times to the high cost of parking tickets and the unexpected expenses related to having a vehicle towed. He also emphasized that removing payday and title loans from Alabama would not eliminate all poverty.

The committee voted after the hearing to send Todd’s HB 145 to a subcommittee after a motion made by Rep. Oliver Robinson, D-Birmingham, and seconded by Rep. DuWayne Bridges, R-Valley. The panel took no action on Scott’s HB 406, the title lending reform bill. The bill could return for committee consideration as soon as next week, but that is not guaranteed.

The public hearing on HB 145 didn’t begin until 45 minutes into the meeting due to lengthy consideration of a handful of relatively non-controversial measures. Speakers were limited to three minutes each, and a time shortage meant a scheduled public hearing on HB 406 never happened.

The Legislature will return Thursday for the 14th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Stephen Stetson, policy analyst. Posted Feb. 12, 2014.