According to Stetson, the payday lending industry in Alabama is fairly new. In the past, Alabamians relied on banks, general stores and friends, family and the occasional loan shark for credit. Payday lenders came into the state as part of what he characterized as “a failed experiment.” Now, these businesses are allowed to charge interest of up to 456 percent as well as charges of $17.50 per $100 loaned.
“They came in under the radar,” he explained. “In 1959, Alabama passed a law capping interest at 36 percent for loans under $1,000. The law that made these payday loans legal was passed in 2003.”
He went on to explain a borrower from one of these businesses comes in with a post-dated check for $500 or less, and borrows money which, in theory, could be repaid in from 10 to 31 days. In reality, all the loans are for two weeks, hence the name “payday lender.”
The average payment, he said, comes to $375, almost all of which goes to interest without denting the principal.
Farley explained title pawns, which are almost always found near used car lots, work on a different principle, and are currently not regulated by any specific law at all.
“They fall under the pawn shop law, but pawning your title is not the same as pawning your car,” she said. “And that is based on a state Supreme Court ruling, not on any piece of legislation.”
In these cases, the borrower turns over the title to his or her car along with a copy of the key in exchange for a small loan at high interest. If they borrower fails to keep up with payments, the vehicle is repossessed and sold, with the lender keeping all proceeds from the sale, even if it is several times higher than the amount owed.
“Right now, Alabama and Georgia are the only states that allow that,” she said.
In short, Stetson said, both business models centered around the concept of usury, which, he said, “cost too much, is immoral, a debt trap, hurts the economy, and is regulated in other states. Think of all your other debt, and try to imagine triple digit interest on your car note or mortgage. These loans are not underwritten, they take wealth out of the community, prevents savings and pushes people into bankruptcy. People can’t pay their other bills, couples fight, crime rises and property values decline.” Stetson also cited passages in the Gospels of Matthew and Luke opposing usury, in addition to Old Testament passages from Exodus, Leviticus, Ezekiel and Proverbs.
“The only incident of violence in the Gospels is Jesus overturning the tables of the money lenders in the temple,” Farley added.
According to the presentation, the average borrower takes out eight loans per year at $520 interest on $375 borrowed. They are in debt for 199 days out of the year, and spend 37 percent of each paycheck on interest for their loans.
The U.S. Congress has passed a law capping interest rates at 36 percent for members of the armed forces or their families, but this cap does not apply to veterans or anyone else. Some 17 states and the District of Columbia have capped interest rates or done away with title lending altogether.
A bill to cap interest at 36 percent in Alabama was introduced into the state legislature last year to wide, bipartisan support, but was not allowed out of committee. That effort is being renewed this year, they said. Sen. Jerry Fielding, R-Sylacauga, has already says he is in favor, but Rep. Steve Hurst, R-Munford, is still on the fence and should be contacted by as many people as possible.
The bill would also limit borrowers to six loans per year and establish a database to determine who is borrowing what from whom. Auto title loans would be covered by a different bill, but would also be capped and limited to six months, and borrowers would be repaid the difference between the sale price of their car and their debt.
Although no one other than the lenders themselves seem to be in favor of the status quo, those lenders have a great deal of money and access to lots of lobbyists and campaign funding through various political action committees, they said.
In southern states such as Arkansas, where interest is capped at 17 percent, and North Carolina, where payday lenders are being done away with, legitimate businesses have not suffered and there has been no hue and cry asking for the high rates to be restored.
They went to describe these lenders as “defective products. If food is poisonous or a product is unsafe, it is banned.” Also, users of such products have the option to sue their makers, which victims of predatory lending currently do not have in Alabama.
Those who are able to, are encouraged to attend a rally in Montgomery Feb. 4, to go to the capital during spring break, and to contact their legislators however possible.
Contact Chris Norwood at firstname.lastname@example.org