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30 days to pay: A simple but important step forward on payday lending reform in Alabama

Alabama borrowers pay interest rates of up to 456 percent a year on payday loans. These high-cost loans trap many struggling Alabamians in a debt cycle that deepens poverty and hurts the state’s economy.

SB 138, sponsored by Sen. Arthur Orr, R-Decatur, would extend the time that payday borrowers have to repay to 30 days, up from as few as 10 days now. This one step would reduce the maximum annual percentage rate (APR) on payday loans in Alabama from 456 percent to about 220 percent. This bill would ease financial pressure on Alabamians who are struggling to make ends meet, giving them more money to take care of basic needs.

The 30-days-to-pay bill would help borrowers and preserve access to credit. Lengthening the repayment period for payday loans would:

  • Boost Alabama’s economy by reducing the amount of fees (more than $100 million last year alone) taken out of our communities every year to benefit primarily out-of-state corporations.
  • Bring payday loan repayment periods in line with repayment schedules for other loans and monthly bills, such as mortgages, rent, car loans, student loans, credit cards and utility bills.
  • Grant needed relief to tens of thousands of working Alabamians and allow them to use their hard-earned money to better their own lives.

BOTTOM LINE: Exorbitant interest rates on payday loans are devastating for families and communities across Alabama. SB 138 would take a simple, important step to reduce the damage from these high-cost loans. That would be good for consumers, good for the state’s economy and good for Alabama.

Click here to read a PDF version of this fact sheet.

Last updated Feb. 2, 2018.

Criminal justice debt: A modern-day debtors' prison

It is illegal to jail a person in the United States simply because he or she owes money. But Alabama has no set process for courts to determine if a defendant can afford to pay fees and fines. And despite a prohibition on “debtors’ prisons,” thousands of Alabamians are at risk of going to jail or are driven further into poverty because they can’t afford to pay costs attached to the criminal justice system.

This fact sheet by Arise policy analyst Carol Gundlach explains how soaring criminal justice debt hurts families and communities across Alabama and considers a range of possible solutions to this multifaceted problem.

New SNAP limits would hurt struggling families

SB 139, sponsored by Sen. Arthur Orr, R-Decatur, would reduce Alabama’s flexibility in the administration of SNAP (the Supplemental Nutrition Assistance Program). These changes would make it more difficult for otherwise eligible households to receive benefits. Some specific examples:

  • Alabama has taken advantage of a federal option that allows elderly SNAP recipients to get food assistance even if they have cash resources, such as savings for health care or funeral costs.     SB 139 would deny help to seniors who have been able to save money for such critical needs.
  • SB 139 could cut food assistance to some families who need more than one car to get to work, school, errands and doctor’s visits. Alabama already counts the value of cash and other “liquid” resources in determining the SNAP eligibility of households without seniors. Our state has elected, however, not to count the value of automobiles or other non-liquid resources in determining SNAP eligibility. This helps recipients in households where more than one person has a car, because otherwise, some of the cash value of a second car could be treated as an asset. Reinstating the resource limits, as SB 139 would do, could make some families choose between essential transportation and food. Other families, including seniors or people with disabilities, could be denied SNAP because they own an old trailer or inherited a small plot of land on which they do not live.
  • SB 139 would deny food assistance to someone who does not “cooperate” with child support. This would require DHR to spend tens of millions for additional child support administration and could put applicants who are victims of domestic violence or child abuse at greater risk.

Alabama’s SNAP enrollment has declined, and it has one of the lowest error and fraud rates of any program in the country. SNAP is highly responsive to economic trends. As the state’s economy improves, the number of people on SNAP has declined by 7 percent since 2013. Alabama’s rate of SNAP errors resulting in overpayments (including mistakes by recipients or DHR workers) was only 1.26 percent in 2014, the most recent year for which data are available.

SB 139 would hurt children, seniors, and people with disabilities. In Alabama, 71 percent of SNAP families had a child in the household. Research has found that children who had access to food assistance in early childhood and whose mothers had access during pregnancy had better health and educational outcomes as adults than children who didn’t have access. Nearly one in five SNAP families have a person who is elderly or disabled. And 40 percent of all SNAP recipients live in families with at least one working member.

Federally funded assistance programs are important to Alabama’s economy. SNAP benefits contribute nearly $2.5 billion in economic activity to local Alabama communities and support as many as 23,000 jobs. Many grocery stores in Alabama rely on SNAP receipts to remain in the black and stay open for everyone in their community.

Click here to read a PDF version of this fact sheet.

By Carol Gundlach, policy analyst. Posted Jan. 23, 2018.

SB 284 offers Alabama consumers protections from high-cost loans and moves lending reform forward

Most states have laws against usury, or excessive interest. Alabama’s Small Loan Act of 1959 caps the interest rate on traditional small, short-term loans at 3 percent a month, or an annual percentage rate (APR) of 36 percent. But more recent laws covering payday and auto title lenders allow APRs many times higher than that. For payday loans, the interest rates can go as high as 456 percent a year. Today, 20 states either have banned high-cost payday lending or strictly regulated the practice. (Click here for a PDF version of this bill overview.)

Alabama lawmakers have granted exceptions for certain products, including payday and auto title loans, claiming these are emergency loans for those who can’t get conventional credit. These high-interest loans take as much as $100 million annually in fees from vulnerable Alabamians, trapping many borrowers in a debt cycle that exacerbates poverty and hurts the state’s economy. More than 54 percent of payday borrowers pay more in fees than the original loan amount, a state database shows.

SB 284, co-sponsored by Sens. Arthur Orr, R-Decatur, and Rodger Smitherman, D-Birmingham, would strengthen consumer protections while preserving the availability of “emergency” payday loans. The bill would:

  • Allow 30-day (rather than 14-day) payday loans at the existing fee, reducing the APR to 213 percent while limiting borrowers to four loans in a 12-month period.
  • Protect consumers by creating a seven-day “cooling-off” period between payday loans to eliminate rapid re-borrowing at high interest rates.
  • Create an “off-ramp” by automatically converting unpaid loans to a three-month installment loan with equal payments at a 3 percent monthly interest rate.
  • Allow Small Loan Act lenders to continue charging a 10 percent non-refundable “upfront” fee on small loans, while prohibiting such fees on rollovers.
  • Cap interest rates at 60 percent APR for all loans of more than $2,000 to guard against higher-cost online “payday”-type installment or revolving credit loans.
  • Remove auto title loans from the Alabama Pawnshop Act and allow them under other consumer credit laws.

BOTTOM LINE: SB 284 would protect consumers and make loans more affordable while preserving small, short-term credit options for Alabamians.

Posted March 23, 2017.

A higher minimum wage would help Alabama families make ends meet and strengthen our state's economy

Too many hard-working Alabamians aren’t paid enough to get ahead. Alabama ranks in the bottom third of states for average hourly wages. Around 77,000 Alabamians earn wages at or below the $7.25 per hour minimum established by the federal government in 2009, and another 394,000 earn less than $10 an hour. In the absence of a state minimum wage, Birmingham in 2015 set its own minimum wage of $10.10 per hour, for implementation by mid-2017. However, the Alabama Legislature overruled, or pre-empted, that measure in 2016 with a state law that prohibits local governments from mandating a minimum wage and other employment practices. (Click here for a PDF version of this overview.)

The “pre-emption law” underscores the need for Alabama to create a state minimum wage. Forty-five other states have their own minimum wage law, and 29 of them have state minimum wages that exceed the federal level. HB 26, sponsored by Rep. Juandalynn Givan, D-Birmingham, proposes to:

  • Establish an Alabama minimum wage at $10 per hour.
  • Adjust the minimum wage every three years to reflect increases in the Consumer Price Index.
  • Require that wages for tipped employees be at least 30 percent of the federal or state minimum wage, whichever is greater.
  • Require that employers ensure tipped employees’ combined wages and tips equal the minimum wage.

The benefits would be widespread. The Alabama Minimum Wage Act would:

  • Raise incomes for the 471,000 Alabamians who now earn less than $10 an hour, and likely prompt raises for many others who earn slightly above that amount.
  • Reduce income inequality by lifting thousands of Alabama families out of poverty.
  • Increase consumer spending, boosting state and local economies and tax revenues.
  • Make sure wage protections keep pace with inflation.

BOTTOM LINE: By setting a state minimum wage of $10 per hour, Alabama would help hundreds of thousands of families make ends meet, boost consumer spending and strengthen our state’s economy.

Posted Feb. 8, 2017.

The new proposed federal payday lending rules are a good start, but they need to be even stronger

Consumer protection took a big step forward in June 2016, when the Consumer Financial Protection Bureau (CFPB) proposed important new federal rules governing high-cost consumer lending products, including payday and auto title loans. The proposals came after years of public comments and input gathered at CFPB events across the nation. (Click here to learn more about the proposed rules.)

Alabamians played a key role in the development of these new regulations. The CFPB held its very first field hearing on payday lending in Birmingham in 2012, and President Barack Obama met with Arise and other state advocates in Birmingham in March 2015 before delivering a speech calling for consumer-friendly reforms of payday and title lending.

These loans come at a high cost in Alabama, where they can carry interest rates of 456 percent a year (payday loans) and 300 percent a year (title loans). The CFPB has broad power to regulate these loans, but importantly, it does not have the authority to reduce rates. Only states can do that.

Arise will continue to work for state-level payday and title lending reform alongside its partners in the Alliance for Responsible Lending in Alabama (ARLA). In the meantime, these new federal rules represent a critical opportunity to improve the landscape of short-term lending in Alabama. Read policy analyst Stephen Stetson's fact sheet to learn what the new rules would do, why they need improvement, and how you can help strengthen them.

SB 285: Adding red tape that would deny food and cash assistance to thousands of low-income Alabamians

SB 285 is a solution in search of a problem. The bill would add huge amounts of red tape that would deny food assistance and cash welfare to thousands of low-income Alabamians – many of them seniors or people with disabilities – who are doing nothing wrong. SB 285 also could cost Alabama tens of millions of dollars to implement during a difficult budget year, and it would not save the state money.

SB 285 would reduce Alabama’s flexibility in the administration of SNAP and TANF, make it more difficult for otherwise eligible households to apply for and receive assistance, and impose expensive and unnecessary verification and data collection procedures on the Department of Human Resources (DHR) and Medicaid. Policy analyst Carol Gundlach’s analysis of SB 285 details 13 things to know about how and why the bill would hurt low-income Alabamians and cost the state money.

A menu of options to improve voting rights in Alabama

Alabama is famous around the world for our historic fights over equal access to the polls. Our entire democratic system depends on how elections are structured and who can participate. When barriers exclude people from voting, they often lose faith in a system that doesn’t seem to value their voice in our society’s decision-making process. (Click here for a PDF version of this overview.)

What proposals are in play?

Civil rights anniversaries and national media attention have placed increasing focus on voting rights issues in Alabama. Several legislative proposals have been advanced to expand access to voting and strengthen our state’s electoral system.

Several bills seek to restore voting rights to people who lost them. HB 268, sponsored by Rep. Mike Jones, R-Andalusia, and SB 231, sponsored by Sen. Cam Ward, R-Alabaster, would clarify which crimes are considered “crimes of moral turpitude” that permanently disqualify people from voting – and which ones aren’t. Other bills that seek to streamline voting rights restoration include HB 222, sponsored by Rep. Chris England, D-Tuscaloosa; HB 245, sponsored by Rep. Thad McClammy, D-Montgomery; SB 186, sponsored by Sen. Linda Coleman-Madison, D-Birmingham; and SB 293, sponsored by Sen. Hank Sanders, D-Selma.

Several bills would ease voter registration. SB 156, sponsored by Sanders, would allow people to register on Election Day. Four other bills – HB 72, sponsored by Rep. Darrio Melton, D-Selma; HB 149, sponsored by Rep. Laura Hall, D-Huntsville; HB 259, sponsored by Rep. Mary Moore, D-Birmingham; and SB 71, sponsored by Coleman-Madison – would register people automatically when they apply for or renew a driver’s license or non-driver ID card.

Other bills would allow more voting time or seek to prevent mistakes. HB 163, sponsored by Rep. Richard Lindsey, D-Centre, and SB 302, sponsored by Sen. Rodger Smitherman, D-Birmingham, would require counties to offer in-person early voting options. HB 52, sponsored by Rep. Mike Ball, R-Madison, would require the state to notify absentee voters if a disqualifying mistake was made on their ballot so they can know not to repeat it. And HB 303, sponsored by Rep. Rod Scott, D-Fairfield, would require registrars to notify living voters who are being purged from the voter list.

What’s the bottom line?

All of the above bills would improve the health of Alabama’s elections and the responsiveness of those who serve in public office. In particular, establishing a clear and common-sense framework for people to regain voting rights after fulfilling the terms of their sentence would help ensure that everyone feels they have a chance to participate in our system of governance.

By Stephen Stetson, policy analyst. Posted March 7, 2016.

SB 91: A major step toward payday reform in Alabama

Payday loans in Alabama carry astonishingly high annual interest rates: up to 456 percent. 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 nearly impossible to escape. A “Colorado-style” reform proposal seeks to give Alabama’s payday borrowers a less expensive path out of debt. (Click here for a PDF version of this bill overview.)

What is SB 91? This bill, sponsored by Sen. Arthur Orr, R-Decatur, proposes changing Alabama’s payday loan law to be more like Colorado’s law. Significantly, the bill would allow payday borrowers to pay down the principal in installments instead of the all-or-nothing, lump-sum payment Alabama now requires. The bill also would give payday borrowers 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 of a payday loan would remain $500.

What about the 36 percent rate cap? Orr’s bill is not a 36 percent rate cap bill. The text of SB 91 mentions a 45 percent rate cap, but that figure can be misleading because the bill also allows lenders to charge additional fees. The interest rate under SB 91 would vary depending on how much money people borrow and how quickly they repay the loan. The maximum rate would be 188 percent a year, but in Colorado, because people often repay loans early, the average loan is at 115 percent a year.

Would this bill put Alabama payday lenders out of business? Absolutely not. In Colorado, the payday loan industry remains profitable. But the new law did shrink the industry’s size significantly in Colorado. Most people there still live fairly close to a payday lending storefront, but there are fewer stores. Alabama could expect to see a similar consolidation of the industry under SB 91.

Would SB 91 help borrowers? Payday loans would be cheaper, and borrowers would have longer to repay them. They also would be able to pay down the loan in installments. Some borrowers in Colorado are still struggling to repay, but many have avoided the long-term debt trap. If SB 91 passes, advocates will continue to seek ways to ensure borrowers are getting credit they can afford.

What about title loans? SB 91 addresses only payday lending. Auto title lending is authorized under a different Alabama law, and title lending reform would require different legislation.

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. The bill would force the payday loan industry to restructure its products. Borrowers still would face high-cost loans and the resulting risks of default, but SB 91 would provide more consumer protections on short-term, small-dollar loans. If industry-backed efforts to weaken the bill are rejected, SB 91 would result in a significantly improved payday lending landscape for Alabama consumers.

By Stephen Stetson, policy analyst. Posted Feb. 22, 2016.

A big win for second chances: Alabama's lifetime SNAP and TANF bans end

It’s a quiet win for thousands of Alabamians seeking to rebuild their lives and provide for their families: Alabama is joining the majority of U.S. states by allowing people with a past felony drug conviction to receive SNAP food assistance and TANF financial assistance, as long as they are otherwise eligible. The effective starting date for this change is Jan. 30, 2016.

The end of Alabama’s SNAP and TANF bans is good news for state budgets and for families. This policy change will help cut corrections costs in the cash-strapped General Fund budget by making it easier for released prisoners to reintegrate into the community, which will help reduce recidivism. Importantly, restoring SNAP and TANF benefits also will help prevent hunger and homelessness among some of Alabama’s most vulnerable families.

Read this fact sheet by ACPP policy analyst Carol Gundlach for the details.

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