The fate of payday lending reform in Alabama this year could hinge on whether the House Financial Services Committee chooses to meet again before next week, and whether its members approve SB 91, sponsored by Sen. Arthur Orr, R-Decatur.

The committee chose not to vote on the bill after hearing nearly two hours of testimony Wednesday morning, including support from Arise and other advocates for payday lending reform. Payday loans are short-term loans for $500 or less, and carry annual interest rates of up to 456 percent in Alabama.

Because committee members didn’t vote after the hearing, they will need to reconvene to determine the fate of the bill, which the Senate passed 28-1 earlier this month. If the committee waits until next week to meet, it will reduce the chance that the bill can reach the House floor in time to pass before the 2016 regular session ends. Just five meeting days will remain in the session after this week.

Rep. Danny Garrett, R-Trussville, presented Orr’s SB 91 to the committee and emphasized the urgent need to act swiftly. “This is the last chance for reform in this session,” Garrett said.

Orr’s bill would reform Alabama’s payday lending laws to be similar to those in Colorado, where prices for borrowers are substantially lower than Alabama’s. SB 91 would reduce interest rates on payday loans and give borrowers at least six months to repay their loans. It also would allow borrowers to pay down the principal in installments, helping them escape debt more quickly.

In addition to Arise, other supporters testifying in favor of SB 91 included representatives of Alabama Appleseed and the YWCA of Central Alabama, as well as Dr. Neal Berte, a former Birmingham-Southern College president who has been a tireless and persuasive advocate for reform.

The committee also heard opposition from payday lending industry representatives, who said Colorado-style reform would prevent them from making loans in Alabama. Colorado has many payday lenders that remain profitable while charging prices roughly one-third of that typically charged in Alabama.

Title loan bill also receives hearing but not a committee vote

The SB 91 hearing Wednesday followed a separate hearing on HB 526, an auto title loan bill sponsored by Rep. Rod Scott, D-Fairfield. That bill would create a special statute for title loans, removing them from the Alabama Pawnshop Act, which caps the maximum interest rate on title loans at 300 percent a year.

Under HB 526, interest rates on title loans in Alabama would be capped at 120 percent a year, in addition to numerous other provisions regulating the issuance of such loans. In an unusual twist, title lenders and consumer advocates (including Arise) both testified in opposition to the bill.

The committee heard testimony but did not vote in February on a reform bill – HB 326, sponsored by Rep. Patricia Todd, D-Birmingham – supported by Arise and other members of the Alliance for Responsible Lending in Alabama (ARLA). The bill would cap title loan interest rates at 36 percent a year.

By Stephen Stetson, policy analyst. Posted April 20, 2016.