Senate committee votes down payday loan restrictions
MONTGOMERY, Ala. (AP) — An Alabama Senate committee on Wednesday voted down a proposal to give payday lending customers longer to repay their loans.
The Senate Banking and Insurance Committee voted 6-8 against the bill by Republican Sen. Arthur Orr that would give borrowers 30 days to repay a loan instead of as little as 10 days.
Fellow Republican Sen. Tom Butler, who argued for the bill on Orr’s behalf, said families facing financial needs turn to payday loans only to get trapped in debt cycles when they can’t pay back the loans when they are due. He said the proposed change would have dropped the effective yearly interest rate from 450% APR to 220% APR.
“Many of them wind up trapped into long-term paybacks at an enormous rate. It’s wrong. It’s time to do something about it,” Butler said.
With payday loans, borrowers pay a flat fee of up to $17.50 per $100 to borrow money for a period of 10 to 14 days. Critics argue that the loans can become a predatory lending trap when people can’t pay off a loan and end up taking out another one. Industry backers say lenders provide a service to cash-strapped people who have few alternatives.
Senators who opposed the plan said they believed people would turn to internet lenders if payday lending stores weren’t available in the state.
The committee vote was a blow to groups that have been seeking more restrictions on the industry. Senators approved the bill last year but it stalled in the House of Representatives. Advocates had witnesses prepared to testify to the committee Wednesday, but a planned public hearing was canceled.
“I’m really disgusted to come into this room today and see a roomful of payday loan lobbyists lining the walls,” Robyn Hyden, executive director of Alabama Arise, an advocacy group for low-income families.
“There are too many people trapped in debt. The Legislature has had multiple opportunities to act.”