Alabama lawmakers received mixed reaction Wednesday when it approved a payday loan reform bill. The legislation would reduce the amount of interest payday loan stores charge, but would remove the modified six-month repayment period.
Reform advocates aren’t pleased, while industry leaders are only somewhat satisfied.
The House Financial Services Committee voted out a bill that would have given payday loan borrowers up to six months to repay the principal amount and the interest. Ken Johnson, chairman of the committee, said he doesn’t think borrowers needed six months to pay the average payday loan of $319.
Johnson argued that average payday loans amount to $300 then there isn’t a need to extend the payback period to six months since many consumers are using these services “responsibly.” He cited that many payday loan customers spend an average of 19 days to pay back a loan. When consumers visit websites they are looking for short term loans not loans with extended payback periods.
Lawmakers would decrease the effective interest rate from around 17.5 percent to 15 percent.
The bill would be sent back to the House for full approval. Officials will vote on the legislation Thursday, but there are concerns that the bill could vanish since there are only three days left in the legislative session and be sent to the “unpredictable committee.”
Supporters for reforms of the payday loan industry were jubilant when the Senate approved legislation that would institute a six-month repayment period as well as installment payments. Stephen Stetson, a policy analyst with Alabama Arise, told the Associated Press that this would have been a “proven solution.”
“That’s still really quick to repay a loan when most of the paycheck is already earmarked for other bills. So we would have liked to see six months,” Stetson said of the 45-day modification, adding that the entire process has been “frustrating.”
Payday loans are very popular in the state of Alabama. According to data from the Banking Department, more than 200,000 borrowers took out 1.3 million payday loans from August until March. This is the equivalent of 43,000 loans per week. The average loan amount was $322 with an average feed of $56.
Those who wanted to increase the payback period argue that it’s a compromise, using similar language found in Colorado. This, proponents say, enables the payday loan industry to continue operations, while protecting consumers. But payday lenders called the proposals a “global extinction event” during a committee hearing last week.
“The whole point of our product is that people like the convenience of having their payment due on their payday. People that get paid weekly or biweekly, that product will no longer be available to them,” said Jabo Covert of Check into Cash in a statement. “I think the members of the committee are all successful businessmen, and I think they’d be disappointed if someone told them to cut their revenue by 60 percent for what they do for a living.”
Republican State Representative and committee member Danny Garrett said the committee respects and supports reform. It just really all depends on what the reform looks like, Garrett noted.