The House Financial Services Committee Wednesday approved a compromise pay day regulation bill that would establish a central database to track loans, but drop an earlier provision that would have capped them at 36 percent.
The new bill, sponsored by Rep. Patricia Todd, D-Birmingham and brokered in part by House Speaker Mike Hubbard, R-Auburn, represents less regulation than what advocates would have liked, and more than what the industry preferred. However, both sides said Wednesday they could generally live with the provisions, assuming they win approval from the House and Senate.
“I think the database will tell us a lot about user frequency,” Todd said after the vote Wednesday morning. “It is a step in the right direction.”
Pay day and title loans are loans with a short life span, typically between 14 and 30 days. Pay day operators can charge up to 456 percent APR on their loans; title loan businesses, which are governed under a separate act, can charge up to 300 percent APR.
Critics of the industries say they trap individuals in a cycle of debt, as many customers of the businesses are forced to take out loans to service interest rates on earlier ones. The industry says it provides a service traditional lenders do not, and that the APR reflects risk.
The state currently caps the amount of pay day loans individuals can take out at $500; however, businesses use third-party databases, effectively making it impossible to enforce the provision.
Todd said the database would be funded by a 75 cent-per-transaction fee, paid for by licensees. Herb Winches, a lobbyist representing Birmingham-based Check Depot, said Wednesday his client could live with the database, assuming all pay day lenders in the state were immediately included in it, not just larger firms.
“Those (bigger) people get converted immediately,” he said. “If the little guy is left behind totally, it’s going to force them out of business.”
Pay day reform advocates have expressed cautious approval of the compromise, though a number said they had not seen the substitute Wednesday morning. Last fall, the State Banking Department moved to establish a central database, but was immediately sued by the pay day industry, which said the Department did not have the authority to make the transaction.
“This would be good, even if it just made the lawsuit go away,” said Stephen Stetson, a policy analyst for Alabama Arise, which supports pay day reform.
The legislation appeared to be dead following a Feb. 12 meeting where the House Financial Services Committee referred the bill to a subcommittee; Todd said she met with various industry representatives over the last several weeks. A companion bill regulating the title loan industry and sponsored by Rep. Rod Scott, D-Fairfield, is still pending. In the upper chambers, Sens. Scott Beason, R-Gardendale and Arthur Orr, R-Decatur, have filed their own regulatory bills for the industries.
Todd said information gathered from the database could lead to further pay day and title loan legislation, possibly in the next two years.
“No one wants to be regulated,” she said. “But I think they realized this was coming down the pike. I don’t think the big companies will be bothered by this.”
The bill now goes to the House for consideration. Todd said she was optimistic about its prospects.
“I have nothing but support,” she said. “It’s always been bipartisan.”
– posted by Brian Lyman