Short-term loans are “an engine to increase poverty,” group says
by Emily McLain
Jan 09, 2014 | 1230 views |  0 comments | 16 16 recommendations | email to a friend | print
SYLACAUGA – Payday and title lenders are “an engine to increase poverty in Alabama,” according to policy analyst Stephen Stetson with Alabama Arise.

Representing the nonprofit, nonpartisan coalition that works to reduce poverty, Stetson shared concerns about payday lenders and title loans with about 15 people, including several local and state officials, gathered at the Chamber of Commerce on Thursday.

“Every dollar paid by a consumer to a payday lender takes $1.94 out of the local economy,” Stetson said. “Every dollar somebody puts into one of these lenders is money they’re not spending elsewhere. It’s money that is basically being vacuumed out of their pockets.”

There are more than 1,000 licensed payday loan businesses in Alabama – compared to 210 McDonalds locations and 75 Starbucks, Stetson said – each of them legally charging up to 456 percent interest on small loans.

There are numerous arguments against payday loans, called so because payments are due every two weeks like a paycheck, and title loans, which claim the title to customers’ vehicles until a loan is paid off, according to Stetson, including the high cost, the hindrance of economic development and domestic strife.

“We have anti-gouging laws that when somebody experiences an emergency, you’re not allowed to take advantage of them,” he said. “This is basically a moral argument that says we do not take advantage of people in need, and payday loans take advantage of people in need. It’s a broken product, and we don’t allow those in our society. We allow folks to sue companies that make a broken product. The payday loan is a broken product, and it’s out there in society harming folks.”

However, the Rev. Hugh Morris with Alabama NAACP said small loans are a necessity for some people.

“Some of the people that take these loans out, the $50 or the $100 that they get is the difference between their electricity being off and them sleeping with no heat,” Morris said at the meeting. “It would be good to look at the 36 percent interest cap, because some people need those types of loans. It would be a disservice to try to eliminate them completely, in my opinion, but if you could cap it to 36 percent, then that $100 whenever this person needs it is there and it won’t sink them in a hole.”

Interest rates in Alabama were capped at 36 percent in 1959, but later rose to the triple-digit numbers allowed today. A bill proposed during the last legislative session sought to return the interest cap on payday and title loans to 36 percent annually and also limit the number of loans a person could take out in a year. Despite numerous sponsors and cosponsors, the bill did not pass, Stetson said.

“If this is going to be solved in Alabama, it’s a legislative question,” he said.

Sen. Jerry Fielding, Sylacauga-R, said he was a cosponsor on that bill and will support it again.

“If you look at what’s going on, it’s not fair to our people,” he said. “We have not only a legal but moral command, it’s in the Bible, to take care of the poor, and I think if we don’t get something passed, they will continue to suffer. It’s a pleasure to try to do something good and right.”

Stetson said there are alternatives to payday and title loans such as financial planning, borrowing from friends and family or taking out a larger loan that is sometimes easier to pay off than a small one.

In states where these payday loans have been banned, he said studies show citizens were not impacted.

Efforts to reach Borrow Smart Alabama, a group of local cash advance and title loan stores committed to educating Alabama about the benefits of short term loans, were not successful Thursday.

Contact Emily McLain at