Enforcement of current Alabama law would be easier under a pared-down payday lending reform bill that emerged from a House committee Wednesday. Triple-digit annual interest rates on the loans would not change, however, under the new version of HB 145 that the House Financial Services Committee approved. The bill awaits consideration by the full House.
The committee substitute to HB 145, sponsored by Rep. Patricia Todd, D-Birmingham, removed language that would have capped the annual percentage rate (APR) on payday loans at 36 percent APR, down from the current 456 percent APR. The new version would require payday lenders to use a common statewide database to keep track of the high-interest loans.
Even with the removal of the interest rate cap, Todd touted the substitute bill as a step forward. “We think people won’t get into massive debt by shopping other places,” Todd said.
Current state law prohibits borrowers from taking out more than $500 in payday loans at any one time. But without a common database, many borrowers hop from storefront to storefront and take out multiple payday loans, racking up thousands of dollars of debt. A common database would alert lenders when a borrower already had received $500 and prevent them from extending additional loans. The state Banking Department last year proposed regulations to create a common database, but lenders sued to block the plan, claiming the department lacked the authority to do so.
Todd’s bill would require lenders to submit information annually to the Banking Department, which many advocates say would greatly improve access to data about the industry. With annual reporting requirements, consumer advocates could get a better understanding of the number of payday loans made each year in Alabama.
For more on the committee’s action on Todd’s bill, check out the Montgomery Advertiser’s coverage. The Legislature will return Wednesday afternoon for the 21st of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.
By Stephen Stetson, policy analyst. Posted March 5, 2014.