Predatory Lending and the Alabama Legislature

by Dana Sweeney, Organizer

There are more payday lenders and title loan stores in Alabama than hospitals, high schools, movie theaters, and county courthouses combined. Payday lending by itself is a massive industry that harms hundreds of thousands of Alabama borrowers and their families each year.  

Each year, the payday lending industry leeches more than $100 million from the pockets of low- and middle-income Alabama borrowers. Lenders make their biggest profits by snaring borrowers in devastating debt traps. While payday lenders advertise quick and easy access to cash, the fine print on their loan products include APR interest rates up to 456%. With astronomical rates like that, small-dollar, short-term loans frequently become expensive, multi-year burdens for Alabamians. To make matters worse, most of the money that payday lenders make by trapping Alabamians in rapidly ballooning debt—an estimated $1 billion each decade—flows out of our communities and into the pockets of companies headquartered out-of-state. When these vampiric lenders sap our neighbors’ household budgets and drain money from our local economies, we all lose.  

This year, Alabama Appleseed joined with other predatory lending reform advocates to advance the 30 Days to Pay bill (SB 138, sponsored by Senator Arthur Orr, R-3). Under current law, payday loans can be issued with full repayment due in as few as 10 days. The 30 Days to Pay bill would have required payday lenders to issue loans on a 30 day repayment schedule, as is standard for virtually all other household bills. It would have significantly reduced the risk of borrowers falling into long-term debt traps by granting them more time and flexibility to repay loans, and it would have effectively cut the APR interest rate experienced by most borrowers in half (which, while remaining a deeply troubling triple-digit interest rate, would nevertheless be a substantial improvement over the current 456%).

A broad coalition of organizations joined Alabama Appleseed in advocating for the passage of SB 138, including business partners like the Birmingham Business Alliance, the Huntsville Chamber of Commerce, and the Alabama Credit Union Association, and faith partners like the State Baptist Convention, the Episcopal Diocese of Alabama, and Greater Birmingham Ministries.

Unfortunately, despite broad popular support for payday reform, the legislature failed to pass SB 138. After inching through the Senate Banking & Insurance committee over the course of several months, SB 138 ended up passing the Senate on March 8, 2018, with a 20-4 vote. It then moved to the House, where Speaker Mac McCutcheon assigned it to the Financial Services committee. Even though many committee members expressed a desire to vote on the bill, Chairman Rep. Ken Johnson (R-7) refused to bring the bill up for a vote. The 30 Days to Pay bill died right where many other payday reform bills have died before it: in the House Financial Services committee.

The end of the 2018 legislative session marked yet another year in which our state lawmakers failed to protect Alabama borrowers while payday lenders lined their own pockets with cash. While most legislators have said that they support predatory lending reform, friends of the payday industry again blocked a limited reform.

The legislature’s failure to pass SB 138 was deeply disappointing, but Alabama Appleseed will continue to fight for predatory lending reform alongside impacted borrowers. Predatory lending reform remains one of the most bipartisan, popular issues in the state, and we will continue to press our officials to do what their constituents have been asking them to do for many years. We will continue to advocate for reforms like 30 Days to Pay, and we remain committed to seeing Alabama move to the gold standard of a 36% APR maximum for all small loans that is seen in many other states.