A bill capping interest rates that payday lenders can charge was sent to a House subcommittee Wednesday, severely weakening its chances of passage. But a companion bill to regulate title loans may still have a heartbeat.
The bills, sponsored by Reps. Rod Scott, D-Fairfield and Patricia Todd, D-Birmingham, would cap the interest charged by both payday and title loan companies at 36 percent APR and establish a central database to enforce existing limits on the number of loans an individual can take out. The title loan bill would further cap APR at 24 percent on loans of $2,000 and 18 percent APR on loans of $3,000.
Advocates pushed similar bills in the 2013 legislative session, but House Financial Services chairman Lesley Vance, R-Phenix City, sent them to subcommittee, effectively killing them for the session. A second bill sponsored by Senate President Pro Tem Del Marsh, R-Anniston would have established a central database to track payday lenders. However, the legislation failed to come to a vote in the Senate.
Vance made the same move Wednesday morning, following a public hearing on the payday loan bill where advocates said the payday loan industry was trapping thousands of people in a cycle of debt. Under state law, payday lenders can charge up to 456 percent APR on their loans, which last between 14 and 30 days; title loan companies can charge up to 300 percent.
“If you don’t think triple digits are usury and immoral, I don’t know what we would define usury and immoral as,” said Shay Farley, the legal director for Alabama Appleseed.
Alabama Appleseed is one of several diverse groups that support the legislation, including the Alabama Citizens’ Action Program, the Alabama Federation of Republican Women, Alabama Arise and AARP of Alabama. More than half of the House has signed on as co-sponsors of Scott’s legislation.
Other supporters said that there was a human toll to the industry. Vonda McLeod, a bankruptcy attorney based in Montgomery, said she had received calls from mothers fearing for their children if the industry put them in jail.
“If you’re in need of groceries or medicine, you may make a desperate choice,” she said. “It’s this desperation that payday lenders rely on.”
Dick Smart, a representative of AARP Alabama, said the industry went after those least able to pay.
“The payday loan business model is designed to trap people in debt,” he said.
Jay McDuffie, CEO of Birmingham-based Alabama Cash Services, was the only industry representative to speak at the meeting. He said the industry provides a service that customers need and that other banking and lending industry areas may not provide.
“You’re going to hear from our opponents that we are unfair and charge outrageous rates,” he said. “There are other charges that are more than we charge. People use us to avoid those fees.”
The reasons for the committee’s moves were not clear. Rep. Thad McClammmy, D-Montgomery, suggested that towing of his constituents’ cars for unpaid traffic tickets was a worse violation, and said that the state needed to take a “holistic” view of the causes of why people turn to payday and title loan companies, saying that regulating them would only address a small portion of the a larger problem.
“If you shut down every payday loan in state of Alabama, you’re not going to kill reason the industry exists,” he said.
Scott said in response that lawmakers could not solve every problem.
“If the government addressed all the causes of all the things that impair our society, this would be a utopia,” he said. “We can only address the things we have the ability to address.”
McClammy’s last campaign finance report showed that $2,000 of the $5,550 he raised in January came from the title loan industry — about 36 percent. The representative Wednesday denied that the donations affected his stand on the legislation.
“I’m not opposed to the bill,” he said. “I’m opposed to the circumstances that’s driving this bill.”
Vance received $1,500 from Titlemax and $500 from Cash America in January, according to his campaign finance report, making up about 30 percent of his contributions that month.
Scott, who sponsored the title loan bill, had his legislation carried over after the committee voted to send Todd’s payday bill to subcommittee. Scott and Farley both said after the meeting that the title loan industry appeared more willing to discuss regulations than the payday industry did, and remained hopeful for that legislation.
– posted by Brian Lyman