Payday Loan Times

Lowell Barron, D-Fyffe, represents District 8 in the Alabama Senate. He penned the following paraphrased take on payday loans for The Montogomery Advertiser …

More than three years ago, I was part of an Alabama legislature that approved a bill to regulate the instant payday loan industry in this state. And like many of my colleagues in the Senate, I felt that the regulations we enacted made a drastic and positive impact for consumers on this previously unregulated industry.

The legislation we adopted outlined the specifics of how the industry would operate and included measures to ensure that the people of Alabama would be treated fairly and would be protected from unscrupulous lenders. Now we need to address the most critical issue Alabamians face with these types of pay day loans - a reoccurring situation which puts the borrower in a cycle of debt that he or she can’t escape.

In the current legislative session, I have introduced a payday lending reform bill which is targeted at the heart of this critical issue. My proposal will:

• Give the customer a one day right to rescind the cash loan - (If a customer has borrowers’ regret or finds another source of funds, he should be able to return the loan proceeds and not incur any cost)

• Prohibit rollovers/renewals - (These loans are designed to fill a one-time need; they are not intended to be primary loans and prohibiting renewals will accomplish this)

• Require all fast payday advance lenders to offer an extended payment plan, with no additional interest charges, to the customer at any time they are unable to repay the loan - This gives everyone a way out if they find that they can’t repay the loan and it eliminates the cycle of debt.)

• Ban all lending to the military and their dependents - (Starting Oct.1, federal law restricts the interest which can be charged to military personnel to 36 percent; I thought we would go a step further.)

There are some who think the states should enact more drastic regulations for the quick cash advance industry and in some instances eliminate it all together. I disagree.

Small short-term loans have been a market vacated by the traditional banking community and in the absence of other alternatives we cannot afford to cut off the supply of credit available to borrowers in these situations. A few years ago, Georgia banned payday loans, but this year they are expected to pass a law allowing these loans again because of the need for these services by many Georgians.

Another bill has been introduced in our session which would repeal the no faxing payday loan act and regulate the industry under the small loan act and I say that this proposal is not the answer.

As policy makers, we must balance the ability of the consumer to manage his/her own financial situation verses eliminating the access to credit. Right now the consumer has choices when it comes to unsecured short term borrowing, they can utilize the provisions of the small loan act or they can utilize the provisions of the payday loan act - both serve a differing need of Alabamians.

If we repeal the payday loan act, then the only option left to the consumer is a small loan transaction and its structure of:

- An installment loan with a minimum 30 day term and maximum of 25 months
- A blended interest rate of 3 percent and 2 percent a month depending on amount borrowed
additional fees in the form of acquisition fees, late payment charges, and account maintenance fees

This structure is not the solution because you are not addressing the problem - borrowers who are unable to repay their cash advance loans have few options and are forced to rollover or renew these loans and these consumers end up trapped in a never ending cycle of debt.

Square pegs do not fit into round holes and trying to regulate an industry under an act that was not designed for that purpose is just bad policy.

I encourage my colleagues not to throw the baby out with the bathwater. The payday loan industry needs reform not elimination. These loans must be further restricted to make sure Alabamians do not fall deeper in a cycle of debt. But it would be wrong to eliminate one of the options many consumers have for badly needed short-term financing.

This problem requires meaningful, effective, and workable solutions and my legislation provides just that. I will continue to advocate and stand behind my check cash advance proposals. Alabamians must be given options, especially when it comes to making credit decisions.