2014 legislative update: Alabama Senate panel approves plan to give payday borrowers more time to repay

Borrowers would get longer to repay payday loans in Alabama under legislation that cleared a state Senate committee Wednesday. The bill also would create a statewide common database for tracking payday loans. SB 410, sponsored by Sen. Arthur Orr, R-Decatur, awaits consideration by the full Senate.

The Senate Banking and Insurance Committee voted 8-1 for the bill, which would extend payday loan terms to four months. Payday loans now must be 10 to 31 days in duration, but nearly all are two-week loans in practice. Orr’s bill originally would have given borrowers six months to repay payday loans, but the committee amended it to reduce that period to four months. Sen. Roger Bedford, D-Russellville, offered the amendment.

Sen. Trip Pittman, R-Montrose, cast the lone committee vote against SB 410. “I don’t think we realize the type of people that depend on this business that it works for,” Pittman said. “If it didn’t work, we have a free market, and they wouldn’t stay in business.”

Jabo Covert, a spokesman for the lender Check Into Cash, testified that lengthening loan terms could put stores out of business. When committee members asked what loan terms would work, Covert said extending terms to 45 days would be “just as bad” for the industry as six-month terms.

Current state law prohibits borrowers from taking out more than $500 in payday loans at any one time. But without a common database, many borrowers hop from storefront to storefront and take out multiple payday loans, racking up thousands of dollars of debt. A common database would alert lenders when a borrower already had received $500 and prevent them from extending additional loans.

The state Banking Department last year proposed regulations to create a common database, but lenders sued to block the plan, claiming the department lacked the authority to do so. A House committee voted Wednesday for a new version of HB 145, sponsored by Rep. Patricia Todd, D-Birmingham, that would create a common database.

Sen. Bill Holtzclaw, R-Madison, spoke in favor of Orr’s bill. Holtzclaw described high-cost loans he saw while in the military. The federal Military Lending Act of 2007 sets a 36 percent APR cap on the annual interest rates on traditional payday and auto title loans made to active-duty service members and their dependants.

SB 410 received “yes” votes from Sens. Bedford; Slade Blackwell, R-Mountain Brook; Jerry Fielding, R-Sylacauga; Bill Hightower, R-Mobile; Holtzclaw; Tammy Irons, D-Florence; Jabo Waggoner, R-Vestavia Hills; and Tom Whatley, R-Auburn. Pittman voted against the bill.

The bill could reach the Senate floor next week. Lawmakers will meet into Wednesday night and return Thursday for the 22nd of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Stephen Stetson, policy analyst. Posted March 5, 2014.