October 23, 2020

Lawmakers shoot down payday loan reform proposal

An Alabama Senate committee on Wednesday voted down a proposal to give payday lending customers longer to repay their loans.

Lawmakers voted 6-8 against the bill that would give borrowers 30 days to repay a loan instead of as little as 10 days.

State Sen. Tom Butler said families facing needs may turn to payday loans, but get trapped in debt cycles when they cant pay back the loan when it is due. He said the change would have dropped the effective yearly interest rate from 450% APR to 220% APR.

“Many of them wind up trapped into long-term paybacks at an enormous rate. It’s wrong. It’s time to do something about it,” Butler said

With payday loans, borrowers pay a flat fee of up to $17.50 per $100 to borrow money for a period of 10 to 14 days. Critics argue that the loans can become a predatory lending trap when people borrow more money when they can’t pay off the first loan. Industry backers say lenders provide a service to cash-strapped people who have few alternatives.

Opposed senators said they believed people would turn to internet lenders if payday lending stores weren’t available in the state.

The committee vote was a blow to groups who have been seeking more restrictions on the industry. Senators approved the bill last year but it stalled in the House of Representatives.

“I’m really disgusted to come into this room today and see a roomful of payday loan lobbyists lining the walls,” Robyn Hyden, executive director of Alabama Arise, an advocacy group for low-income families. “There are too many people trapped in debt. The Legislature has had multiple opportunities to act.”