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2015 legislative update: Another win for payday lending reform as Alabama House committee OKs six-month repayment bill
Payday lending reform advocates in Alabama scored two victories at the State House on Wednesday. First, a strong reform bill (HB 531) cleared the House Financial Services Committee without opposition. Shortly thereafter, a bill to expand the maximum size of payday loans (SB 446) stalled in the Senate Banking and Insurance Committee.
HB 531, sponsored by Rep. Danny Garrett, R-Trussville, would extend the amount of time that payday borrowers have to repay their loans to six months, effectively reducing interest rates to 36 percent a year. Current state law allows lenders to demand repayment of payday loans anywhere between 10 and 31 days after the loan is issued. In practice, most payday loans in Alabama are for 14 days.
Garrett presented a robust defense of his legislation, which has 38 bipartisan co-sponsors. He presented a lengthy description of the history of payday lending reform, along with the importance of giving borrowers sufficient time to repay their loans.
Payday loans in Alabama are short-term loans that carry annual interest rates of up to 456 percent. “I’m a free-market conservative, but I don’t think this makes sense,” Garrett said.
The House committee approved Garrett’s bill without an opposing vote. It now awaits action by the full House. A Senate version of the measure – SB 335, sponsored by Sen. Slade Blackwell, R-Mountain Brook – also won committee approval last month and awaits a Senate vote.
Bill to expand payday loan size in Alabama delayed in Senate committee
Later Wednesday, Arise’s Stephen Stetson and other consumer advocates testified against a bill that would double the size of payday loans allowed in Alabama. A Senate committee took no action on SB 446, sponsored by Sen. Tom Whatley, R-Auburn, but the bill could return as soon as next week.
The bill had been moving quickly this week. Whatley introduced the measure Tuesday, and it was brought up for a committee hearing the next day. The plan received a public hearing before Whatley agreed to carry over the bill until a future date after Sen. Bill Holtzclaw, R-Madison, raised questions about interest rates on other loans.
Under current Alabama law, payday loans may not be for more than $500. But Whatley’s bill would allow payday borrowers to take out up to $1,000 at a time while leaving the maximum interest rate on the loans – 456 percent a year – unchanged.
Wednesday’s committee action came two weeks after an Alabama Supreme Court decision cleared the way for a statewide payday loan database. The court upheld the state Banking Department’s power to create the database to help enforce the state’s existing $500 cap on overall payday loan debt.
By Stephen Stetson, policy analyst. Posted May 6, 2015.
2015 legislative update: Testimony from Arise's Kimble Forrister on 'flat tax' proposal
Arise's Kimble Forrister testified before the state Senate's education budget committee Wednesday, April 29, 2015, about SB 409. The bill would raise income taxes on the lowest-paid Alabamians but cut taxes for the top 1 percent by thousands of dollars on average. The committee carried the bill over at the sponsor's request, but it could return later this year. Here's the full text of Forrister's prepared remarks:
“Alabama Arise believes that Alabama can’t move forward as long as we have an outdated, upside-down tax system. Several church bodies have passed resolutions calling for lower taxes for those who pay too much and higher taxes for those who pay too little. As it stands now, middle-income workers pay twice the share of income paid by the top 1 percent in state and local taxes.
“Alabama Arise worked closely with Rep. John Knight and Gov. Bob Riley in 2006 to raise Alabama’s income tax threshold for a family of four from $4,600 (worst in the nation) to $12,600 (now worst in the nation again). No state would tax that family except Alabama. In fact, very few states still tax workers whose income is below the poverty line.
“Under SB 409 as written, millionaires get a great deal: a tax cut of nearly $4,000 on average. At the lower end, Alabama families would pay income tax on their first $100 of income. No other state does this. In fact, every other state with a flat tax has created some mechanism to exempt families at $12,600 from the income tax.
“One such approach is Colorado’s, where a 4.25 percent flat tax is imposed on federal taxable income, not adjusted gross income (AGI). It’s just as simple as SB 409, but far more family-friendly. Instead of paying 2.75 percent of line 37, you’d pay 4.25 percent of line 43: Taxable Income. The result would be lower taxes at all income levels, on average, and the overall effect would be more revenue-neutral than SB 409 is now.
“Another approach is Pennsylvania’s, where the flat tax is softened by a tax forgiveness provision that applies only to lower-income families. Those who qualify would pay less, giving a break to low-income people and retirees.
“Finally, there’s the possibility of a state Earned Income Tax Credit, which half of the states now have. If we designed one at 10 percent of the federal EITC, it would reduce total revenue by $137 million, and the bottom quintile would no longer be the only quintile that would pay more under SB 409. Thank you for your time.”
2015 legislative update: 'Flat tax' plan could raise income taxes on lowest-paid Alabamians
Alabamians struggling to make ends meet could have to pay state income tax on the first $100 they earn under a new “flat tax” proposal that the Senate’s education budget committee considered Wednesday. SB 409 would eliminate all personal exemptions and standard deductions and require an 80 percent majority of both the state House and Senate to add new tax breaks.
Alabama’s upside-down tax system would become even more skewed without such breaks for low-income families. Under SB 409, Alabama would be the only state that shields no income at all from tax. The state’s current income tax threshold – the minimum income level where one begins to pay income tax – is already the nation’s worst: just $12,600 for a family of four.
Overall, Alabamians with low and moderate incomes pay twice the share of their incomes in state and local taxes that the top 1 percent do. Requiring families who live in deep poverty to pay income tax would make that gap even larger.
Low-income workers would pay higher taxes under SB 409, while the richest Alabamians would get a tax cut. Families with incomes below $18,000 a year would pay an additional $73 in income taxes on average, according to an analysis by the Institute on Taxation and Economic Policy (ITEP), a nonpartisan research organization based in Washington, D.C. The top 1 percent, on the other hand, would get a tax cut of more than $3,800 on average, ITEP estimates.
More than half of Alabama families earning less than $18,000 a year would pay more in taxes under the plan, according to ITEP. By contrast, 90 percent of Alabamians earning $431,000 or more would get a tax break.
“Under SB 409 as written, millionaires get a great deal: a tax cut of nearly $4,000 on average,” Arise's Kimble Forrister told senators Wednesday during a public hearing on the bill. “At the lower end, Alabama families would pay income tax on their first $100. No other state does this.”
SB 409 would replace Alabama’s nominally progressive income tax rates starting in 2017 with a single rate: 2.75 percent for individuals and 4.59 percent for corporations. The top rates now are 5 percent for individuals (on taxable income above $3,000) and 6.5 percent for corporations. The plan – sponsored by Sen. Bill Hightower, R-Mobile – would offset some of the revenue loss by ending the state’s federal income tax (FIT) deduction, which overwhelmingly benefits high earners.
The plan would end most state income tax breaks for individuals – but not for corporations. Individuals could claim a deduction only if it is for a charitable contribution or required by federal law, unless 80 percent of the Legislature approves a new deduction. But SB 409 would protect almost all corporate tax credits, deductions and exemptions. More than 80 percent of SB 409’s corporate tax cuts would benefit out-of-state corporations and stockholders, ITEP estimates.
The proposal also could cut funding for public schools significantly. The plan as written would reduce revenues by $146.5 million a year, the Legislative Fiscal Office estimates. That would pile on even more cuts to K-12 and higher education in Alabama, which has made some of the nation’s deepest K-12 and higher education cuts since the Great Recession. State education funding is still well below 2008 levels.
SB 409 is a proposed state constitutional amendment. It would require legislative approval this year and voter approval in 2016.
The Senate committee carried over the bill at Hightower’s request Wednesday, but it could return later this session. Hightower said he intends to address concerns with the plan by making changes to help protect low-income families and retirees and to avoid reducing education revenues. Read the Associated Press' coverage for more details.
By Chris Sanders, communications director, and Carol Gundlach, policy analyst. Posted April 28, 2015. Updated April 29, 2015.
2015 legislative update: Alabama Supreme Court clears way for statewide payday loan database
A single decision by the Alabama Supreme Court may cut the number of payday lenders in the state by half. In a holding without a written opinion, the court affirmed Friday that the state Banking Department has the authority to require lenders to use a common statewide database to help enforce Alabama’s cap on total payday loan debt.
The case, Cash Mart, Inc., et al. v. Alabama State Department of Banking, was a challenge to the department’s regulatory authority. The Banking Department issued the database rule in light of the Legislature’s failure to pass the requirement in a statute.
Arise has long sought a statewide payday loan database to close a loophole that allows many payday borrowers to exceed the state’s existing $500 cap on payday loan debt. Without a common database as an enforcement mechanism, payday borrowers can go from store to store and rack up thousands of dollars of debt at annual interest rates of up to 456 percent. Creation of the database could shutter about half of Alabama’s payday loan storefronts, industry representatives have estimated.
The court’s ruling also eliminates the need to create a database by statute. HB 417, sponsored by Rep. Patricia Todd, D-Birmingham, would have required lenders to use a centralized database and won House committee approval earlier this month. Todd withdrew the bill Tuesday after the decision.
The Banking Department already has selected a vendor for the database and originally announced June 1 as the date for the system to go live. However, the department since has announced a delay in that date and has yet to announce a new one.
Arise and other consumer advocates will continue to push the Legislature to approve payday loan interest rate caps in Alabama.
By Stephen Stetson, policy analyst. Posted April 28, 2015.
2015 legislative update: Alabama crossroads: We need new revenue
We all want to live in a healthy, secure and prosperous state. Alabama is taking important steps toward that goal now, but deep General Fund budget cuts could undo that progress.
Medicaid’s new regional care organizations will keep patients healthier while cutting costs. Prison system improvements will protect Alabamians while lowering costs and helping former inmates transition back into their communities. Investing in these changes now will save money later.
We’re at a crossroads in Alabama. Cutting vital services is the wrong path.
The devastating cuts in the no-new-revenue General Fund budget proposal would force us to abandon our Medicaid and corrections improvements. And without new revenue, Alabama faces deep service cuts that could make the state a worse place to live for years to come.
Cuts to Medicaid, which covers one in five Alabamians, would top $300 million. That would force the program to end coverage of vital services like adult eyeglasses, prosthetics, hospice care and outpatient dialysis. It also likely would lead to even fewer doctors serving Medicaid patients, most of whom are children, seniors, and people with disabilities.
The costs for Alabama’s children would be real. Cuts to the Department of Human Resources (DHR) would make Alabama the first state to end its Temporary Assistance for Needy Families (TANF) program. That would eliminate cash assistance for more than 30,000 children living in deep poverty, as well as uniforms, car repairs and other job readiness assistance for their parents.
DHR cuts also would end child care benefits for 15,000 children. That could hurt our state’s economy by forcing thousands of working parents to quit their jobs. More than $340 million in child support payments would be risk if DHR ends collection services, and hundreds of seniors would lose adult day care services that allow them to live independently.
Mental health funding cuts would harm more than 25,000 Alabamians by reducing or eliminating community-based mental illness and intellectual disability services. That would reduce independence for thousands of Alabamians. The cuts also could cost hundreds of people their jobs by forcing them to stay home to care for family members who lose crucial support services. In addition, severe mental health cuts could land Alabama back in federal court.
Deep General Fund cuts would have serious public safety implications as well. Nearly a fourth of Alabama’s state troopers would be laid off. The prison system, which already operates at nearly twice its designed capacity, would close two facilities. That would mean even more overcrowding and an even greater chance of a federal takeover of the state’s prison system.
More than 1,100 state workers would lose their jobs, including more than 600 court employees. That likely would force courts to close at least two days a week, meaning longer wait times for criminal trials or restitution cases.
This is no way to invest in our state’s future. Alabama needs new revenue to end the chronic budget shortfalls that are holding us back. The General Fund needs a sustainable revenue stream to support Medicaid, corrections, mental health care and other vital services. Raising the cigarette tax and raising the state sales tax on automobiles to 4 percent – the same as we pay on groceries – would be two good places to start.
If we want a better Alabama tomorrow, we need to start building it today.
By Kimble Forrister, executive director. Posted April 23, 2015.
Bills to reform payday lending, change Accountability Act clear Alabama legislative committees
Alabama borrowers would have much longer to repay payday loans under a bill that emerged from a state Senate committee Wednesday. SB 335, sponsored by Sen. Slade Blackwell, R-Mountain Brook, now awaits action by the full Senate.
Blackwell’s bill would bring substantial reform to the payday loan industry in Alabama. It would extend the length of time that borrowers have to repay their loans to six months. Alabama law allows payday lenders to set loan terms between 10 and 31 days, but nearly every transaction is a two-week loan term.
The bill received a favorable report from the Senate Banking and Insurance Committee, which Blackwell chairs, by a vote of 11-1. Only Sen. Tom Whatley, R-Auburn, dissented.
Accountability Act changes clear House committee with two amendments
A bill that would expand tax credits and limit the size of scholarships under the Alabama Accountability Act (AAA) won House committee approval Wednesday. SB 71, sponsored by Senate President Pro Tem Del Marsh, R-Anniston, passed the Senate last month and awaits action by the full House.
The House’s education budget committee made two changes to the bill. Students already receiving AAA scholarships would remain eligible for that assistance as long as their family’s income does not exceed 275 percent of the federal poverty level – about $66,000 for a family of four – under an amendment offered by Rep. Phil Williams, R-Huntsville.
Another amendment by Rep. Terri Collins, R-Decatur, would require an independent comparison of the test scores of students participating in the AAA scholarship program to those of similar students in public schools. Collins’ amendment also would exclude schools that serve students with special needs from the act’s definition of “failing schools.”
The AAA, passed in 2011, allows Alabama businesses and individuals to get tax credits for donations to organizations that grant scholarships to help eligible students attend private schools. Click here to learn more about the act and how SB 71 would change it.
By Stephen Stetson, policy analyst, and Rebecca Jackson, communications and development associate. Posted April 15, 2015.