Governor Robert Bentley announced last week a new governmental task force of 33 state and national experts, called the Alabama Consumer Protection Task Force, to identify potential legislative measures that could help stem the tide of payday loans crippling many Alabamans’ finances.
The announcement comes shortly after the federal Consumer Financial Protection Bureau proposed more stringent regulations and policies for short-term loan agreements earlier this month, a move that has been largely applauded by policymakers.
There are “four times as many payday lenders in Alabama as there are McDonald’s,” said House Representative Terri Sewell of Alabama’s 7th Congressional District. “Borrowers should not be at the mercy of predatory lenders and CFPB’s proposed rules would strengthen consumer protections and make it harder to prey on vulnerable communities.”
Payday loans are typically small loans, averaging $375, which quickly accrue high interests and fees — an average $520, more than the amount of the loan itself. These kinds of debts may damage credit scores or prohibit people from investing in larger financial assets, such as a Federal Housing Administration 203k loan that allows people to make lower 3.5% down payments on a house.
With such debilitating long-term effects, many feel that the state should be doing more to protect people from predatory loans. The “CFPB announcement is an important step in the right direction for payday and title loan borrowers in Alabama, but it’s not enough,” said policy analyst Stephen Stetson. “The rules contain many exceptions, and they may not go into effect for quite some time.”
“The new rules also would not change the extremely high annual interest rates that Alabama allows those loans to carry: up to 456 percent a year for payday loans, and up to 300 percent a year for title loans,” Stetson continued. “Alabama needs to build on these rules at the state level by closing loopholes and encouraging more affordable short-term loans for borrowers.”