SB 91: A step in the right direction for Alabama borrowers

Payday loans in Alabama carry astonishingly high interest rates: up to 456 percent a year. These loans pose as a helpful source of credit, but far too often they act as financial quicksand, trapping borrowers in cycles of debt that can be hard to escape. SB 91 would give Alabama’s payday borrowers a less expensive path out of debt. (Click here for a PDF version of this bill overview.)

What would SB 91 do?

  • This bill, sponsored by Sen. Arthur Orr, R-Decatur, proposes changing Alabama’s payday loan law to be more like Colorado’s law. (HB 342, sponsored by Rep. Patricia Todd, D-Birmingham, is the House version of this plan.)
  • Payday borrowers would be allowed to pay down the principal in installments instead of the all-or-nothing, lump-sum payment now required.
  • Payday borrowers would get at least six months to repay their loans.
  • The interest rate cap on the loans would vary depending on the size of the loan and how quickly it is repaid. The maximum loan size would remain $500.

SB 91 would help Alabama borrowers get out of debt.

  • Payday loans would be cheaper, and borrowers would have longer to repay.
  • Borrowers also would be able to pay down the principal in installments.

SB 91 would not put the payday loan industry out of business.

  • Colorado’s payday loan industry remains profitable, but there are fewer stores.
  • Alabama could expect to see a similar consolidation of the industry.

What’s the bottom line?

  • SB 91 strikes a middle ground, compromising between a 36 percent rate cap and a status quo that sinks far too many Alabamians deep in debt.
  • Allowing borrowers to pay down the principal on payday loans in installments would help them escape debt more quickly.
  • SB 91 would provide more consumer protections on small, short-term loans.
  • SB 91 would improve the payday lending landscape for Alabama consumers.

(Update: The Senate voted 28-1 on April 5 to pass SB 91. A House committee approved a different version of SB 91 on April 27, and the House is expected to debate it on May 3.)

By Stephen Stetson, policy analyst. Posted March 7, 2016. Last updated May 3, 2016.

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