The state of Alabama really likes payday loans. Last year, Alabamians took out millions of payday loans, says a new report from a government agency released on Wednesday.
According to information from the Alabama Consumer Protection Task Force database, Alabama consumers borrowed approximately two million payday loans. This is an enormous sum, considering that the state government has been trying to rein in the industry for the last few years.
State officials were pleased, though, that 400,000 payday loans were declined last year.
Ostensibly, the numbers point to an alarming trend: many of the payday loan borrowers are repeat borrowers. The state database suggested that roughly 250,000 people accounted for the two million payday loans.
The average payday loan was $326, and consumers had doled out an average of $56 to borrow the funds.
“We’ve got to make sure consumers are protected. I want our companies to make a reasonable profit. They have to. They can’t stay in business if they don’t, but we have to protect,” said Alabama Republican Governor Robert Bentley at a government meeting.
The Heart of Dixie established the database in 2015 to record and monitor payday loan transactions. The database also assisted state officials in enforcing current limits on how much people could borrow at one time. The task force, meanwhile, consists of dozens of 33 experts appointed by the Office of the Governor, Alabama Legislature, Alabama Law Institute, Attorney General’s Office, Alabama Bar Association, Alabama State Banking Department and other state-level departments.
Since the database was founded, it has provided the government with a plethora of data pertaining to payday loans.
“The database proved what we’ve long been saying, that it creates a cycle of debt,” said Shay Farley, legal director of Alabama Appleseed. “People can’t afford to pay off lump sum balloon payments.”
In April, the Alabama Senate approved a payday loan reform bill. One of the key passages of the legislation includes extending the time to pay off the payday loans to six months, up from 30 days. It would also regulate the interest rates that payday lenders can charge to borrowers.
Soon after the Senate bill was approved 28 to one, GOP State Senator Arthur Orr said that it strikes a fine balance between enabling payday loan companies to operate and to protect consumers from high costs.
“It allows the industry to continue,” Orr said in a statement. “It allows a product that a lot of people rely upon. But it decreases the punitive nature of our current system.”
Although critics of payday loans wanted a 36 percent APR cap on payday loans, the state senator’s reform bill was a step in the right direction for many consumer advocacy groups.
Opponents of the payday loan industry make the case that the alternative financial product is dangerous because it sends millions of vulnerable consumers into an endless cycle of debt. Payday loan supporters say that it allows the impecunious to access credit when traditional financial institutions turn them down.