Last year, payday loan legislation was introduced in the Alabama House of Representatives, but it didn’t get very far in the Senate. With a new year and another legislative session upon the state, the issue is expected to be brought up again. Proponents of the payday loan legislation say establishments charge high interest rates and are wrong.
The Associated Press reports that Selma Democratic State Representative Dario Melton has co-sponsored two pieces of legislation that lower interest rates for payday and title loans. Meanwhile, Birmingham Democratic State Senator Patricia Todd believes decreasing interest rates to just 100 percent would be considered a victory.
“When working mother comes to them for an advance to put food on the table for her children or when a single father needs his check a few days early to pay rent, it isn’t right that they will now be locked into a cycle of repaying debt on astronomically high interest rates,” Melton told the Selma Times Journal. “This only requires more advances and creates a deeper, self-fulfilling cycle.”
The issue of payday loans has been front and center across the Heart of Dixie. It has been consistently reported that some payday loan establishments charge as high as 400 percent interest rates on less than 30-day loans. Another factor that peeves lawmakers is that low-income areas are targeted by payday loan outlets.
“People who are living on the edge of economic stability don’t have credit cards, they don’t have a bank account so when a car breaks down or they have a health issue, they see payday loans as a quick fix to their problem,” Todd told the Selma news publication. “There’s a reason that you only see them in poor neighborhoods — they don’t really know how the interest rates accumulate. You can make money; you’re a business, I don’t have a problem with that, but you cannot take advantage of a disadvantaged community.”
Many local leaders are concerned over the number of payday loan businesses that have been popping up in the streets of Selma since the 2007 and 2008 economic collapse. One Councilman told the story of a 75-year-old gentleman who had immense debt with one payday loan establishment and died owing the company money.
Although the legislation failed, Alabama Republican Governor implemented a database that would cap payday loans at $500 to prevent excessive debt.
Industry fights back
Industry representatives have been fighting back, though. They argue that the high-interest loan posters plastered on business windows should not be judged because these figures are for short-term loans.
Advance America Senior Vice President Jamie Fuller says that customers are charged $17.50 for every $100 borrowed and a large majority of the loans are paid back on time. In fact, according to the company, 95 percent of its loans are paid back regularly and only 2.5 percent are never collected.
“While it is easy to criticize our industry based on part of the facts, our customers understand the cost of our product,” Fuller said. “Most commonly the customer comes in one time and we never see them again. It’s not like they are trapped in some sort of cycle of debt.”
The purpose of the one-time fee is because it’s a short-term loan and not a loan similar to a car or a house.
Even consumer financial agencies aren’t concerned over establishments like Advance America. Instead, Community Financial Services of America believes lawmakers should pass legislation that tackles illegal loan agencies that can usually be found online.
“The entire industry is painted with one brushstroke and everyone seems to think that we conduct business in the same way,” CFSA representative Amy Cantu said. “You have good actors who follow the law and bad actors who seek to commit fraud and scam consumers.”
In the end, for legitimate payday lending businesses, it’s quite rare to have customers that are in a perpetual cycle of debt.