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.

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