Feb. 27--MONTGOMERY -- Sen. Arthur Orr, R-Decatur, introduced a bill to change the terms payday lenders in the state use.
Senate Bill 410 would extend loan terms from their current bi-weekly model to a six-month term. It wouldn't change lending rates but would allow borrowers more time to repay loans and reduce their fees, Orr said Wednesday.
"Part of the problem, as explained to me, is that people frequently rollover their loans and more fees are accumulated," Orr said. "They keep rolling them forward and then have a problem with all the fees that accrue. So the bill is based after a model in Colorado that seeks to expand the time and prevent that constant rollover and repetition of new fees."
According to a news release from Orr's office, for every $1 of interest paid to a payday lender, local economies lose $1.94 in reduced household spending.
A bill by Rep. Patricia Todd, D-Birmingham, that stalled in committee this month would have required payday lenders to be licensed by the state banking department, limited the interest rates paid on loans to 36 percent and limited loans to six in a 12-month period.
Payday lenders opposed that bill. Orr said he hasn't talked to industry leaders about his bill.
"But to me it seems like a different way to approach the issue," he said.
Orr's bill also requires a statewide database to ensure that no borrower takes out more than $500 from any lender at one time. That's currently state law, but it's not enforced. An effort by the state banking department last year to create such a database has been challenged in court by industry leaders.
Orr's bill will likely be in committee next week.
Shay Farley, legal director for Alabama Appleseed Center for Law and Justice, said Wednesday she appreciates Orr and bill co-sponsors for not letting the payday lending issue die this session.
She said the bill corrects the two biggest hurdles Alabamians face in borrowing money: interest rates that can reach 400 percent and usury practices that let people borrow beyond their means to repay.
Recently, at least 18 Alabama cities passed moratoriums on payday lenders, including Decatur and Athens.
In December, the Decatur City Council passed a resolution asking the Legislature, the U.S. Congress and the Consumer Financial Protection Bureau to enact laws, policies and procedures that "will allow the continuation of a lending product serving the constituents' needs but in a more transparent and consumer-friendly manner ..."
Decatur had a moratorium on new payday and title loan businesses and might renew it.
"But at some point, without help from the Legislature, I'm not sure what we can do," Mayor Don Kyle said this month. "Our hands are really tied at the local level."
Mary Sell covers state government for The Decatur Daily. She can be reached at firstname.lastname@example.org. Follow her on Twitter @DD_MarySell.
(c)2014 The Decatur Daily (Decatur, Ala.)
Visit The Decatur Daily (Decatur, Ala.) at www.decaturdaily.com
Distributed by MCT Information Services