Committees in the Alabama House and Senate on March 5 approved two bills that would place some limitations on payday lending in the state. The House Financial Services Committee passed a measure that would establish a central database to track loans but that would scrap a proposed 36 percent interest rate ceiling. The Senate’s Banking and Insurance Committee, meanwhile, approved a bill to establish a database and impose a 52.5 percent annual percentage rate (APR) cap on loans. It also would extend the repayment term on payday loans from 10 to 31 days, giving borrowers as long as four months to pay off the debt.
The House legislation, sponsored by Rep. Patricia Todd (D-Birmingham) and brokered in part by House Speaker Mike Hubbard (R-Auburn), is less regulation than what advocates wanted. Todd said, however, “It is a step in the right direction.” Information gathered from the database could lead to further regulation, possibly in the next two years, she said. Payday reform advocates are cautiously optimistic about the compromise. Companion bills to regulate the title loan industry are still pending.
Currently, payday operators can charge up to 456 percent APR on their loans; and auto title lenders can charge up to 300 percent APR. Alabama now restricts the amount of payday loans individuals can take out at $500, but the use of third-party databases makes that almost impossible to enforce. Todd said the new central database would be funded by a 75 cent-per-transaction fee, paid for by licensees.