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.

Sen. Lowell Barron, D-Fyffe, has introduced a bill designed to reform the state’s controversial Alabama payday loans.

Barron said payday lending can trap borrowers in a cycle of debt. Payday loans, which are short-term loans typically for $1,500 or less, are intended to bridge the borrower’s cash flow between paydays.

“It is my opinion that we need to address some workable reforms to the [payday cash loan] industry,” Barron said.

Barron himself came under fire for owning a number of “fast cash” operations during the last election, though he reported he sold his interests in 20 such businesses. He voted to approve a bill four years ago that placed some regulations on the previously unregulated payday loan industry. The 2003 bill allowed the businesses to charge 17.5 percent interest per transaction.

“I felt that the regulations we enacted [then] made a drastic and positive impact for consumers,” he said.

Barron said his new reform bill would give the customer a one-day right to rescind the cash advance payday loan and prohibit rollovers or renewals. The bill would also require all lenders to offer an extended payment plan with no additional interest charges to customers at any time if they are unable to repay the loan – which Barron said would eliminate the cycle of debt incurred by many consumers.

Barron’s bill would ban all military payday loans. Starting Oct. 1, a federal law restricts the interest charged to military personnel to 36 percent.

“I thought we would go a step further,” Barron said.

Sen. Bradley Byrne, R-Fairhope, has also introduced a bill that would repeal the 2003 legislation and put no faxing payday loan businesses under the ASL act.

“[This bill] would repeal the payday loan act and regulate the industry under the small loan act, and I say that this proposal is not the answer,” Barron said. “Right now, the consumer has choices when it comes to unsecured, short-term borrowing.”

Barron said regulating an industry using an act that was not designed for that purpose would not be successful.

“I encourage my colleagues not to throw the baby out with the bath water,” Barron said. “The payday loan industry needs reform, not elimination.”

Regulating Alabama payday loans under the state’s Small Loans Act, as Sen. Bradley Byrne of Montrose wants to do, would be a good step toward protecting low-income citizens from predatory lenders.

Indeed, legislators should go even further.

Sen. Byrne introduced a bill that would bring payday loans under the regulations of the Alabama Small Loans Act. That would limit the interest charged by the quick payday advance companies to 36 percent a year.

Since 2003, payday loan companies have been allowed to charge 17.5 percent interest per transaction. In practice, that amounts to an outrageous annual interest rate of 300 percent to 400 percent, depending on the amount of the original loan.

The typical no faxing payday loan is less than $200 and is to be repaid within a few weeks. Under loan company practices, borrowers who want more time to repay a loan must pay an additional 17.5 percent every two weeks.

Granted, payday loan companies assume a considerable risk by lending money to low-income people who are in financial trouble. But their exposure is limited.

It’s encouraging that both the Alabama Democratic Party and the Christian Coalition of Alabama have endorsed Sen. Byrne’s bill. With broad support, the Legislature shouldn’t hesitate to pass the proposed legislation. Indeed, social justice demands that it be passed to prevent personal cash loan companies from exploiting vulnerable families.

Legislators also could limit consumers to only one payday loan within a 60-day period. They could prohibit payday loan companies from taking an interest in a customer’s personal property, and could restrict the companies’ dealings with members of the military.

Legislators opened the state to predatory cash loan practices by legalizing the payday loan business four years ago. Now, they need to step in to protect consumers from the companies’ worst practices.

SOURCE: The Mobile Register

A state senator says a bill he introduced in the Senate would substantially reduce the interest customers pay when they take out Alabama payday loans.

The Legislature in 2003 passed a law legalizing cash loans and allowing the businesses to charge 17-point-5 percent per transaction.

However, Senator Bradley Byrne of Fairhope says most faxless cash advance loans are for small amounts and are to be paid back in a matter of weeks. He says if calculate the interest over a year’s time the annual interest rate is as much as - quote - “300 to 400 percent.”

The bill Byrne introduced yesterday would repeal the 2003 legislation and place payday loan businesses under the Alabama Small Loan Act. The act sets the maximum annual interest rate at 36 percent.

Barbara Evans is director of Alabama Watch. She recently wrote in to the Montgomery Adviser …

I applaud the Montgomery Advertiser for its series on payday loans, and I have reviewed the letter from Darrin Andersen, president of the Community Financial Services Association of Alexandria, Va., stating that consumers have the smarts to make the correct choices for their lives.

Consumers may have the smarts, but the state of the economy and job conditions make it difficult to make the correct choices.

In this materialistic society, where a person’s worth seems to be measured by their credit rating or their possessions, working class families find themselves working two and three jobs to survive, and relying on payday advance lenders to get them out of the seemingly never-ending crises that occur in their lives.

I am reminded of many years ago, when I was forced to go on welfare. On Christmas, there was no money for toys, and I was desperate to get my son a Big Wheel. I would have done anything to get that toy for him. I ended up not paying my rent to get the toy, and we later got evicted. It was a stupid choice to everyone but a single mother.

Alabama Watch believes that a small loan is a small loan, no matter what kind of loan it is, and that small personal loans ought to be regulated by the Alabama Small Loan Act. It isn’t fair to consumers or other lenders to carve out special laws for special lenders, and it is disingenuous to consumers to do so.

We don’t have the lobbying strength of the well-financed quick payday loan lenders. We are also weakened by the fact that families in crisis with poor credit have nowhere else to turn. The payday lenders have a strong argument when they compare their rates to the bank overdraft charges, which are now approaching $40.

We are accosted by a constant barrage of credit card offers in the mail. I get about 15 per week. Homeowners are a marketing target for equity lenders. It sounds great to combine car loans, credit cards and other debts into a new mortgage, but it causes some people to lose their homes.

Marketing of cash loans, equity loans and credit cards is a huge business, and they know how to get to people who are looking for a way out of a bad situation. It is unfair to blame consumers when we are targeted by big business and when most of us are at the wall financially.

Alabama Watch provides preventative education to consumers on a number of issues such as payday cash advances, but our bottom line lies in our legislative and court systems.

Until we have a fair and nonpartisan way to elect judges, until the guy with the most money stops winning elections, until we stop selling our democracy for money and power, we will be at a terrible disadvantage.

The only home is for consumers to organize, become well educated and band together to force change. We hope we can continue to be a part of that change.

State Rep. James E. Buskey thinks it’s time to rethink Alabama’s 3-year-old payday lending law.

This comes as no shock . The Mobile Democrat fought in vain earlier this decade to stop legalization of payday loans in Alabama.

What is surprising is that Lowell R. Barron could be right there with Buskey. The Alabama Senate president pro tem announced during his successful 2006 re-election campaign that he was selling his interest in a quick payday advance chain and would support reform.

“When I heard that,” Buskey said, “I wanted to jump for joy.”

Barron has since opted to step down as Senate leader. But the Fyffe Democrat is expected to remain in the Senate and wield some influence there.

Much as Buskey would like to run cash advance lenders out of the state, as Georgia and North Carolina did, he said he would settle for repeal of the industry’s exemption from Alabama’s usury laws. “They’re wreaking havoc,” Buskey said of payday lenders.

In 2005, after years of litigation, the Alabama Supreme Court ruled that payday lenders should have been regulated under the state’s Small Loan Act before the 2003 legalization of the industry. The Small Loan Act sets a maximum annual interest rate of 36 percent. The legislators allow payday lenders to charge 456 percent.

Ron Gilbert, policy analyst at the citizen advocacy group Alabama Arise, said legislators never should have taken the bait from instant cash loan industry lobbyists before the high court ruled.

“The issue was always framed as, ‘we need to be regulated,’ ” recalled Gilbert. “Our answer was: ‘No, they’re illegal. Don’t legalize them.’ ”

If legalization is repealed, Buskey said he favors letting the Supreme Court ruling prevail. Advance America, Cash Advance Centers Inc. spokesman Jamie Fulmer said the industry cannot survive with just 36 percent interest on the high-risk loans.

Scott W. Corscadden, the state’s chief regulator of no fax payday loan lenders, said he hasn’t heard of any concrete reform proposals for the 2007 legislation session.

“But I wouldn’t be shocked if something was percolating out there,” Corscadden added.

According to The Birmingham News, Alabama residents last year paid $225 million in extra fees for small, short-term payday loans, the fifth highest amount in the country, based on a report released Thursday by a consumer advocacy group that opposes predatory lending practices.

Center for Responsible Lending found American families last year paid $4.2 billion in fees on such loans. The loans typically charge a minimum fee of $15 or more per $100 borrowed with a full repayment of the borrowed amount due in two weeks.

Payday cash advances, basically two-week cash advances on paychecks with fees up to 17.5 percent in Alabama, have the equivalent of an annual interest rate of more than 400 percent and usually are rolled over several times instead of being paid back quickly.

The typical borrower pays back $793 for a $325 loan.

Opponents argue such terms prey on those who can least afford them; advocates say no fax needed payday loans fulfill a legitimate need for people who need emergency cash.

“We think payday lending is a defective product,” said Jean Ann Fox, consumer protection director at the Consumer Federation of America. “They are based on enticing customers to write checks when they don’t have money in the bank to cover them.”

The report estimated that 90 percent of payday loans nationwide go to borrowers with five or more such loans each year, and the $225 million in “excessive” fees in Alabama represented 90 percent of the total no fax payday loan fees collected in the state.

Alabama and 38 other states allow payday loans. Eleven states have clamped down on the industry, such as capping interest rates at 36 percent. Congress this year put just such a cap on payday loans to military families.

In Alabama, 1,201 cash loan stores lent more than $1.4 billion last year.

Julian Bond, chairman of the NAACP, said the civil rights organization opposes the practice because it tends to prey on low-income minorities.

“There’s a market for all kinds of products, financial and not, and when those products are proven harmful to the public consciousness, the states have stepped in to bar or prohibit them,” Bond said.

The payday loan industry took issue with the report, arguing that its credit products are a reasonable alternative for people who need cash quickly and that most of their customers are employed, responsible people who pay off their cash advances on time.

“Contrary to the (Center for Responsible Lending’s) spin, responsible uses of the payday product provides consumers firm footing to overcome unexpected financial circumstances,” said Ken Compton, CEO of Advance America.

PLS Payday Loan Store locations in Alabama, Arizona, California, Illinois, Mississippi, and Wisconsin donated a total of $18,000 to community schools.

The donations were part of a Back to School promotion, in which customers nominated local schools to receive $200 donations. The winning schools were selected with drawings held at each PLS Payday Loan Store on August 26.

The cash advance company donated $5,000 to elementary and high schools in Illinois and $4,800 to Wisconsin schools. Arizona schools received $3,400, while donations to Mississippi schools totaled $3,000.

"A good education is the key to our children's future," said Charlie Murphy, executive vice-president of Chicago-based PLS Payday Loan Store. "PLS is committed to being a good neighbor and helping our community schools stay strong."

Some might say this provider of fast payday loans simply acted in the name of public relations - but that doesn't change the fact that these schools received money.

Try as he might, Senator Lowell Barron cannot shed his image as a one-time payday loan store owner.

The latest criticism of the candidate comes from retired Colonel, Tom Brown, a man who claims not to campaign for anyone - yet certainly is showing displeasure over Barron's old cash advance ties.

Brown held three news conferences Tuesday across North Alabama to slam Barron, D-Fyffe, for owning payday loan businesses, which may have caused financial hardship to soldiers. Brown referred to payday loans as "evil" and being run by "loan sharks" who charge "up to a criminal 400 percent" for a year-long loan.

"Sen. Lowell Barron has fostered a predatory lending industry in Alabama that has, to quote the Pentagon, 'weakened our military' by targeting soldiers who are struggling financially during this time of war," Brown, 67, said on the steps of the Madison County Courthouse, reported The Huntsville Times.

Brown, who said he came to Huntsville in 1984 and retired here in 1992, said he'd never heard of Barron's involvement with payday cash advances until the senator announced he was seeking reform for the industry. He has since sold all interests in the stores.

The debate over payday loans: Whether or not Barron introduces legislation to ban rollover loans that rack up hefty interest fees could be moot. The federal Military Personnel Financial Service Protection Act was signed into law last month to protect soldiers and sailors from unscrupulous lenders.

Barron said he wasn't aware of the federal legislation when he began plans to draft a state law. He said he doubts any of his businesses ever made personal loans to military personnel because none are near a military base.

"I just didn't like the direction the industry was going in, and I wanted to be an advocate to clean up those abuses," Barron said.

Barron's opponent, Don Stout of Fort Payne, said he was surprised by word of the news conferences Tuesday.

(Read on …)

Based on the interest rates they charge, most cash advance companies and stores earn a profit. While critics have a problem with this scenario, some of that money is often used for good. 

Case in point: PLS Auto Title Loans and the PLS Payday Loans Store in Montgomery have donated $400 to schools in the Montgomery area as part of a back-to-school promotion.

Customers at the two cash cash advance loan stores nominated two local schools to receive a $200 donation.

In drawings, George Washington Carver High School won one of the $200 contributions, while Holtville Middle School in Elmore County won the other.

Both stores are owned by Chicago-based PLS Payday Loan Store, which operates more than 200 financial service centers in nine states. Such moves by a bad credit payday loan company are probably just a PR decision - but that doesn't make the donation any less helpful.