Payday Loans: Gifts With A Curse

Payday-Loan-Gifts

No Money, No Problem!

The holidays are a time when the average American family, and families all over the world are pressed for cash. Some pinch pennies, others borrow from their savings, or family. Those with fewer options use Payday Loans. Most loans offer cash with “no credit” and “no problem” but for many Americans, especially Alabamians, a little cash, is a lot of problems.

On average, the interest on a payday loan is 391 percent nationally, and in Alabama it can skyrocket to as high as 456 percent; which stiffs Alabamians with one of the highest interest rates in the nation. (falling just below South Dakota and Wisconsin, both 574%; Nevada, 521%; Delaware, 517%; and Utah, 474%.) This means they are paying two, even three times as much for items purchased with a Payday Loan advance.

Take Back The Tax

The Alabama Superintendent of Banking, in 2015 states, there were 2.1 million loans taken out in Alabama but only 246,000 borrowers. Of those borrowers 50% chose to extend their loan six or more times, essentially paying $116 million in fees alone. Now, that fee is astronomical, but what does that mean for the future of payday loans?

 

 

The Men With The Plan

Sen. Arthur Orr, the Redstone Federal Credit Union President and CEO Joe Newberry, and Birmingham-Southern College President Emeritus Neal Berte to address the issue of payday lending reform in Alabama. Orr, R-Decatur, decided to introduce Senate Bill 284, which he hopes will provide what he says is “a fair and equitable access to credit to residents across the state.”

SB 284,

[…this bill would limit the number of deferred presentment transactions a borrower could enter into in a 12-month period to four transactions and would prohibit a license from rolling over a deferred presentment transaction, within seven days of a prior transaction. This bill would set the term of all deferred presentment transactions to 30 days. This bill would provide for one automatic three month extension. This bill would prohibit a License from engaging in certain actions in an attempt to collect on a transaction or evading the requirements of the Deferred Presentment Services Act by disguising the transaction as another type of loan product. This bill would provide licensing through a national database. ]

Essentially, this bill prohibits consumers from entering into transactions that have “pawn-like” results, using personal property, such as the titles to vehicles. In addition, it would cap the interest rate on loans of more than $2,000 at a 60 percent annualized rate, defined by federal regulation.

Alabama’s House of Representatives also saw forty-five members draft a payday reform bill, HB 321,

[…no person should be subjected to unconscionable interest rates authorized by government regulation. No church, charity, or community foundation shall bear the burden of providing financial assistance because government approved loan products have proven to be exploitive…]

which proposes an amendment to the state Constitution. In addition, it would cap the interest rate at 36 percent per year on lines of credit, certain consumer loans, and other financial products. Change, is definitely coming.

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    Updated on 14 December 2017

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