Andrew J. Yawn

Montgomery Advertiser

In the fight for effective payday lending reform, 45 Alabama legislators are pushing to give the power to the people.

A bi-partisan group of legislators and payday reform advocacy groups gathered at the Alabama State House Tuesday to introduce a bill that would allow Alabamians to vote on a constitutional amendment that would cap payday loan interest rates at 36 percent. Currently, the average rate for so-called “predatory loans” is 300 percent, with a maximum possible rate of 456 percent.

Due to the high interest rates, many borrowers get trapped in cycles of repayment.

About $480 million in payday and car title loan interest fees is paid each year by Alabamians, the sixth highest annual figure in the nation, said Diane Standaert, director of state policy at the Center for Responsible Lending. Of that total, $116 million was from payday loans.

“Many of these payday loans are rolled over,” said state Rep. Bob Fincher, the bill’s sponsor. “Many of the people end up paying 360 or 400 percent on a loan. Fifty percent of the extended loans are rolled over six times or more. We are entrapping people in poverty and leaving them there.”

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A state database created by the Alabama Department of Banking found that, from 2015 to 2016, almost 240,000 Alabamians took out payday or car title loans, about five percent of the state’s population. That five percent took out $668 million in loans, or close to $13 million a week. The average borrower takes six to eight loans out per year, and more than 54 percent of those people paid more in interest than their original loan amount.

Fincher compared it to modern day sharecropping, and Neal Berte, president-emeritus of Birmingham-Southern College, said most of the money earned by payday lenders doesn’t even bolster the state economy.

“$116 million in fees were taken out of the state of Alabama because a majority of these payday companies are owned out of state,” Berte said.

Standaert said most of that $116 million would be kept in Alabamians' pockets due to the more manageable payments an interest cap would provide.

A state payday reform bill failed to pass last year, but in pushing to let Alabamians vote on the interest cap amendment, the advocates are putting their faith in a system that has not yet failed.

Currently, 15 states plus Washington, D.C., have a 36 percent interest rate cap or have outlawed payday lending altogether. Each time the cap was put to a public vote, the vote passed with an overwhelming majority.

The most recent was South Dakota, which passed a 36 percent cap with 75 percent of the vote last November.

Arkansas and North Carolina are the only other Southern states with a cap. Georgia has never legalized payday lending and enforces the practice as it would usury or racketeering.

A study completed in January by the Public Affairs Research Council of Alabama found that 65 percent of Alabamians surveyed are in favor of the cap.

Payday lenders have opposed similar bills in the past saying that the interest cap makes business unsustainable, and Fincher said others have called it direct opposition to a free market economy.

“If free enterprise in this state means the ability to abuse our fellow citizens in the way this is being done, it’s about time we interfered,” Fincher said. “I have faith in the people of Alabama that they will pass this when given the opportunity to.”

Susan Dubose of Greater Alabama Republican Women emphasized that the issue should not be seen through the lenses of party colors. She said that while payday lenders have been shown to disproportionately prey on minorities and the poor, more and more college towns are being overrun by predatory lending as well.

“I am pro-business and pro-entrepreneurship, but sometimes there are things that are more important, and that’s looking after each other,” Dubose said. “This is a bi-partisan issue I think we can all agree on.”

The bill will next go to the Constitution, Campaign, and Elections Committee.