Alabama Senate Passes Bill to Cut Payday Loan Costs


People who take out payday loans would have more time to repay them under a bill passed today by the Alabama Senate, a change that would effectively lower triple-digit interest rates that pay borrowers.

Advocates of payday loan reform claim that the high cost of loans helps keep borrowers in debt.

Payday lenders have opposed the bill to extend loan terms, saying it would bankrupt some lenders and force borrowers to turn to lenders that are beyond the reach of state regulators.

The Senate passed the bill by a 20-4 vote, sending it to the House of Representatives. The sponsor, Sen. Arthur Orr, R-Decatur, admitted his proposal faces tough sleds in the House.

“The House committee was pretty much the Bermuda Triangle and the place from which no payday loan reform bills emerge,” Orr said.

Current law allows lenders to set terms for payday loans from 10 days to 31 days. Lenders are allowed to charge 17.5% of the amount advanced, which equates to an annual rate of 455% if the loan term is two weeks.

“These are huge numbers and it really causes tax stress for individuals to be able to pay off such a loan,” Orr said.

Orr’s Bill, by requiring a 30-day term, would effectively cut that rate in half by giving borrowers more time to pay. Orr said it makes debt more manageable because people are used to paying their bills on a monthly basis.

Senator Tom Whatley, R-Auburn, said Orr’s Bill would bankrupt lenders and cut jobs for those who work for companies. Whatley spoke out against the bill for an hour, reading the first names of employees at payday loan stores.

“These businesses will disappear and these people will be out of work,” Whatley said.

Orr disputed this, saying the payday lending industry thrives in states that charge rates lower than his bill.

According to the state banking department, borrowers took out 1.8 million payday loans in Alabama last year. They total approximately $ 609 million borrowed, and borrowers have paid $ 106 million in fees on these loans. The average term was 20 days and the average fee amount was $ 59 per loan.

The legislature passed the law to regulate payday loans in 2003.

There are 630 licensed payday lenders in the state today, up from a peak of around 1,200 in 2006.


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