Pay day reform bill may return in reduced form

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Rep. Patricia Todd, D-Birmingham (File)

Rep. Patricia Todd, D-Birmingham (File)

Seemingly dead just a few weeks ago, lawmakers plan to revive a proposal to regulate pay day lending in the state, albeit in a more modest form.

The House Financial Services Committee Wednesday is scheduled to bring back legislation sponsored by Rep. Patricia Todd, D-Birmingham, which appeared defeated after being referred to a subcommittee on Feb. 12. The compromise, Todd said Tuesday afternoon, would be limited in its provisions: language to cap interest rates would be dropped, limiting the bill to the establishment of a central database to ensure pay day lenders and lendees are complying with state limits on the amount of pay day debt individuals can carry.

“We figure if we get the database, it will give us enough information to move forward on the other stuff in a year or two,” Todd. “But it will give us good data, and it will restrict people from having more than $500 (out in loans) at a time.”

It remains to be seen whether the bill will be voted out of the committee, which has been a trap door for pay day and title loan reform legislation. Committee members, many of whom have received substantial contributions from the industry, did not give a reason for referring the bill to subcommittee during the February meeting. Todd said the new bill was the result of negotiations in which House Speaker Mike Hubbard, R-Auburn, was involved, “so I assume it’s going to move.”

Senate President Pro Tem Del Marsh, R-Anniston, has also expressed his preference for legislation that would chiefly concern itself with a database.

If it does move, the legislation would mirror actions taken by the state Banking Department last fall to set up a centralized database to track payday loans. The industry immediately sued to block the database, saying the Banking Department had no statutory authority to do so.

The loans issued in both industries are short-term loans, usually lasting between 14 and 30 days. Pay day lenders can charge up to 456 percent APR on their short-term loans; title loan operators, governed under a separate act, can charge up to 300 percent APR. Critics say the industry traps Alabamians in cycles of debt, forcing them to take out new loans to service existing ones. The industry says it provides a service traditional lenders do not, and says the high interest rates mirror the risk involved in the loans.

State law currently forbids pay day loan companies from extending loans to customers who have more than $500 in outstanding loans; however, lenders use multiple databases to track customers, and customers can go to different stores to take out loans. Supporters of the central database provision say that it would be a step toward enforcing that limit.

Pay day and title loan reform has drawn a diverse number of supporters, from Alabama Arise, a group that works on poverty issues, to the Alabama Federation of Republican Women. A title loan proposal sponsored by Rep. Rod Scott, D-Fairfield, has more than half of the House listed as co-sponsors, including Reps. John Knight, D-Montgomery and Dimitri Polizos, R-Montgomery. However, House Financial Services Committee chairman Lesley Vance, R-Phenix City, has been the critical vote on the legislation, and has to date been reluctant to bring the legislation out to the floor.

“I think Rep. Vance is working as hard as possible to get the groups together to resolve the issues,” Scott said. “One of the problems when you start dealing with legislation is it has to pass the House and Senate. If there’s agreement, it goes through very readily.”

Rep. Steve Hurst, R-Munford, a member of the House Financial Services Committee, said he would prefer to see the bill move.

“I’d like to see it come on out,” he said. “I think we need a database.”

– posted by Brian Lyman

One thought on “Pay day reform bill may return in reduced form

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