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Payday loan bill dies, but issue not dead

By MARY SELL, Alabama Daily News

Last year, 189,231 Alabamians took out 1.6 million payday loans worth about $563.6 million from lenders in the state. They paid about $98.4 million in fees, according to a database kept by the Alabama Department of Banking.

“It’s absolutely massive,” Dev Wakeley, a policy analyst for the progressive advocacy group Alabama Arise, said recently about the fees paid by borrowers. 

“All this money is getting syphoned out of communities and most of it goes out of state.” 

Payday lending reform, specifically the fees allowed to be charged to borrowers, has become a perennial issue in the Alabama State House. A bill by Sen. Arthur Orr, R-Decatur, to give borrowers up to 30 days to repay the money instead of what can be 10 to 20 days, was killed earlier this month on an 8-6 vote in the Senate Banking and Insurance Committee.

“The fact that this bill got shut down in committee does not negate the fact that there is a massive need for reform,” Wakeley said.

Lenders say their numbers have decreased in recent years and more regulations will impact them further, sending Alabamians to online lenders that aren’t regulated by the state.

Max Wood, a payday lender and president of Borrow Smart, a payday industry group, told Alabama Daily News that the number of licensed storefront payday lenders in Alabama has declined by about 50% in recent years to about 600.

Wood said there are two reasons for that: a proliferation in online lenders and enforcement of Alabama’s $500 cap on the amount of money people can borrow at one time.

In 2013, Wood said Alabamians had 4 million payday loan transactions, compared to less than 2 million last year. 

“People didn’t stop borrowing, they stopped borrowing from state-regulated lenders and went online,” Wood said.

Those who voted against the bill in committee said they were concerned that more regulations for storefront lenders would send more borrowers to online lending.

“Is this not creating an uneven playing field for those who are doing it the right way?” committee chair Sen. Shay Shelnutt, R-Trussville, said.

Orr has sponsored a variety of payday-lending reform bills in recent years, many getting killed in committee as this year’s legislation did. Orr said he isn’t giving up.

“I’m still committed to the issue and getting a more fair rate for Alabama borrowers,” he said last week.

According to the department of banking’s data:

  • About 37% of the 2019 transactions were for $500, while the average loan amount was $348;
  • About 66% of borrowers paid fees between $50 and $100.
  • Of the 189,231 borrowers, 29,765, the largest percentage, took out one loan, 18,414 borrowers had 20 or more loans. 

The database information collection started in  2015. The Alabama Supreme Court earlier that year ruled the state Banking Department can use the database, created by 2013 legislation to enforce the $500 limit. Payday lenders sued the department to block the creation of the system.

Sen. Tom Butler, R-Huntsville, presented the bill to the Senate committee.

He said families that live paycheck-to-paycheck use the loans in emergencies and sometimes to buy back-to-school supplies for their children. The state’s database showed the most loans occurred in the month of August last year.

“Many of them wind up trapped in long-term paybacks at an enormous rate of 456% in this state,” Butler said. “I just think it’s wrong and we need to do something about it.”

Butler also said some southern states, including Georgia, don’t have payday lenders. Payday lending in its most common form is illegal in Georgia, according to that state’s banking department. Small loans of less than $3,000 are regulated by the Georgia Industrial Loan Act.

Wakeley, from Alabama Arise, said there is “discussion of some other avenues” toward reform, including possible changes at local and federal levels.

“This issue is never going to be dead until we end this predatory structure,” he said.

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