Alabama Senate-Approved Payday Loan Term Limits

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Payday loan stores seen in Montgomery in 2014. A new statewide loan tracking database found that Alabama residents are getting $ 14 million in payday loans every week.

The latest effort to lower interest rates charged by Alabama payday lenders was approved by the state Senate Thursday, but not without some parliamentary drama.

The upper house voted 20-4 Thursday on a bill sponsored by Senator Arthur Orr, R-Decatur, that would increase the repayment term on short-term loans to 30 days. The bill moves to the House, where, Orr noted, previous attempts to reform payday loans have disappeared.

“We’re halfway there,” Orr said. “But the hardest mountain to climb is ahead.”

Payday loans are short-term loans that run from 10 to 31 days and can carry Alabama interest rates of up to 437 percent APR. Critics say that people who get a loan often find themselves taking out a second loan to pay off the first, trapping them in a cycle of debt. Industry representatives argue that they make loans to people who may have difficulty obtaining them.

Efforts to change the laws have run into a wall of lobbyists retained by the industry. Those seeking changes in the laws, who at one point wanted a 36 percent APR cap on loans, have been unsuccessful. The Alabama State Department of Banking established a central database in 2015 where payday lenders must submit reports. The industry sued to stop the database, but finally it was unsuccessful.

According to the departmentMore than 214,000 people had personal loans last year, and most of them had obtained four or more loans.

Orr’s bill would require all loans to last 30 days, which, he said, would lower the APR on loans to 220 percent.

The bill faced an hour-long obstructionism in the Senate from Senator Tom Whatley, R-Auburn, who argued that the new terms would force some payday lenders to close. Whatley repeatedly read the names of people he claimed worked on payday stories in the state.

“If they close, and I contend they will, you will send (clients) to overseas accounts,” he said.

Orr said that if that happened, employees could find new jobs, citing Alabama’s 3.5 percent unemployment rate in December.

“Trust me, not everyone is going to go broke with a 30-day payback,” Orr said.

Before the bill escaped the chamber, it went through a series of parliamentary detours. After passage, Orr moved to avoid a second vote on the bill, a motion that failed in a tie. A motion to reconsider the vote barely failed on a 14-13 vote, sending the legislation to the House.

“The House committee has been the Bermuda Triangle, the place where no payday loan reform bill comes out,” Orr said.

House Speaker Mac McCutcheon, R-Monrovia, said Thursday that he “had no doubt that there would be a healthy and heated debate if he leaves the committee and comes into the room.”

“Some people approached me and said ‘Mr. President, if you take this away from me, I am a person to whom the banks will not lend money,'” he said. “Then talk to the people who have taken advantage of high interest rates and penalties, and worked their way into a position where they can’t pay. There are pros and cons to this that we need to address.”

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