It’s about eight months until the Alabama Legislature convenes its 2015 regular session, but proponents of laws to control payday and title loans are working hard in the off season.
The Alliance for Responsible Lending in Alabama (ARLA), a nonprofit coalition of organizations that focuses on payday and title loans, is developing grassroots support for a state law that would limit interest rates and impose other restrictions. The group also is working closely with city officials around the state in efforts to get cities to restrict payday and title loan businesses.
“We now have 21 ordinances in place that in some way restrict predatory loans,” says Shay M. Farley, legal director of the Alabama Appleseed Center for Law & Justice Inc., a member of ARLA.
Montgomery recently adopted a zoning ordinance that requires new payday and title loan businesses to be at least 2,500 feet apart as well as at least 250 feet away from schools, churches, parks and houses.
Pelham adopted a one-year moratorium on new payday and title loan stores, pawn shops, check-cashing business and other businesses in June.
Farley now is working with officials in Tuscaloosa and Troy on possible ordinances and says some officials in Huntsville are interested in restrictions as well.
“Part of the next steps is getting more city councils interested,” Farley says.
While she is pleased that cities are taking action, Farley says they are not able to impose limits on how payday and title loans do business. So ARLA is now asking city councils to pass resolutions asking the Alabama League of Municipalities and legislative delegations to support bills restricting predatory lending in the 2015 session.
Several bills that would have limited payday and title loans died in the legislature in 2014. One sponsored by State Rep. Patricia Todd (D-Birmingham) would have limited payday loans to 36 percent interest and required lenders to use a common database so that borrowers could get no more than $500 in loans at one time.
Payday loans are short-term loans that are accessible to people who have jobs and checking accounts with no credit check. Typically, borrowers promise to repay the loans on their next payday and are charged 17.5 percent interest for that period, which generally is two weeks to 30 days. Borrowers give lenders checks dated for their payday.
Thus, a $300 loan carries $52.50 in interest. A $500 loan, the highest allowed by Alabama law, costs $587.50 to repay. That equals as much as 456 percent annual interest.
Many payday lenders require borrowers to return on payday with cash to cover the loan and interest. They are given their checks back at that point. If the borrower does not come, the lender cashes the check. Some lenders simply cash the checks on the borrowers’ payday instead of asking borrowers to pay in cash.
Borrowers frequently take out another loan immediately after they repay one.
Title loans, which are basically pawns of car titles, carry the same 25 percent per-month interest allowed for pawn shops, or 300 percent annual interest.
A bill sponsored by State Rep. Roderick Scott (D-Fairfield) would have limited title loans to 36 percent interest, and one introduced by State Sen. Scott Beason (R-Gardendale) would have restricted the interest for both kind of loans to 30 percent.
“We’re absolutely using the off season to spread the word louder and further. … We are trying to go to at least the four corners of the state. We have done the Wiregrass. We’ve done the northeast section of the state,” Farley says. “We also incentivize people to be engaged at the local level.”
ARLA is holding informational meetings to let participants know about the issues surrounding payday and title loans. Farley says about 45 people, including city officials and representatives of the faith community, attended a recent session in Huntsville.
“Beyond that, we have done some pretty good things. … We are doing a mobile petition where we have created these banners that we are asking people who come out to our meetings to add their names to,” she says “We can use that as an example of the support to show the size and the scope of the support.”
She believes the support for restrictions on payday and title loans is growing. She uses the fact that the Southern Baptist Convention and Northern Alabama District of the United Methodist Church both have recently adopted resolutions as evidence. Newspapers around the state also have published editorials in favor of restrictions.
Farley says she has been working to educate people about payday and title loans for six years. Support in the legislature has galvanized only in the last two sessions. She says no bill had made it to the floor in the legislature until this year, when Scott’s bill made it that far.
“It took us 12 years to get a landlord-tenant law,” Farley says.
ARLA plans to continue campaigning for restrictions on payday and title loans, and Todd says she intends to introduce a bill again in 2015.
Farley says people who learn that borrowers pay up to 456 percent interest on their loans often are offended by that fact.
“If you believe that everyone should only take out loans that they can afford, you should not believe in these payday loans,” Farley says. “The most conservative person who believes in fiscal responsibility should not be for this product.”
ARLA will keep expanding its community engagement in coming months. “If we can continue to do these outreach sessions, the number of people who are talking about it will continue to get that momentum flowing,” Farley says.
For more information on ARLA, visit its Facebook page.