Pamela Tarver says she turned to title loans because she fell behind on her rent. Nearly four years later, Tarver said she has paid over $14,000 in interest.
“My first initial loan was $700 to catch up on my rent,” Tarver, a Montgomery resident, told a crowd of about 40 people outside the State House Tuesday. Eventually, she said, she began paying $380 a month, just to cover interest payments — difficult to match, she said, on a minimum wage job.
“If I saved that money, I probably could have bought a BMW,” she said.
Those attending the rally hoped to prevent situations like Tarver’s in the future with bipartisan legislation that would cap interest rates charged by payday and title loan providers and establish a central database to enforce limits on the number of loans individuals can take out each year.
The loans, short-term financial transactions that last between two weeks and 30 days, have interest rates not typically associated with other loans. Payday lenders can charge interest rates of up to 456 percent APR; title lenders can charge rates of up to 300 percent APR. Critics call the rates usury that trap customers in a cycle of debt.
“All they need is a gun,” said Rep. Rod Scott, D-Fairfield, whose bill addresses title loan lending, “because at those rates, it’s like a gun is being held to their head.”
The legislation from Scott and Rep. Patricia Todd, D-Birmingham, would cap interest rates at 36 percent.
The legislation has bipartisan support from lawmakers and groups ranging from Alabama Arise to the Alabama Federation of Republican Women.
Payday and title loan operators, who hired a platoon of lobbyists to kill similar efforts last year, argue that they provide a service traditional lenders do not. Buck Wilson, president of the Modern Financial Services Association of Alabama, representing payday lenders, said the lenders can not operate under the proposed cap.
“When there’s fair market economy, it drives the prevailing rate down, so consumers don’t necessarily pay the high percentage points that I read about,” he said. “But because of operating expenses, our losses and expenses can be substantial at times. It would be virtually impossible to operate a payday front with that cap.”
Legislative leaders have expressed sympathy with the goals of the legislation, but caution toward the bills themselves. House Speaker Mike Hubbard, R-Auburn, said last week he hoped to find a “happy medium” between the industry and reform advocates, and expected a vigorous debate. Senate President Pro Tem Del Marsh, R-Anniston, said he was doubtful about passage of such changes this year, but did express hope that the State Banking Department would prevail in its attempts to establish its own central database for lenders. Industry representatives have sued to block the database.
“The rumor is that the leadership will not allow any bill out of committee that is in any way controversial,” Todd said at the rally. “When the Republican women and I agree on a bill, you should take note: There must be something good about it.”
The 40 people who attended the rally lobbied lawmakers after the rally. Stephen Stetson, a policy analyst with Alabama Arise, urged people to emphasize accomplishment with legislators.
“If you want to go home and get re-elected, you need to go home and have something to brag about,” he said. “This is something to brag about.”
– posted by Brian Lyman