Like locusts in a biblical plague, Alabama is overrun with predatory lenders because lawmakers lack the intestinal fortitude to do anything about it.
The halls of the state Capitol are filled with weak attempts at reform, broken promises and failed hopes of anti-payday loan activists. In the two decades since predatory lending became an Alabama scourge, a handful of Democrats and Republicans alike have filed tepid bills that would “regulate” the amount of interest payday lenders could charge their customers. But there were two problems: (1.) their regulatory attempts didn’t go far enough, and (2.) none of them became law.
Like we said, no intestinal fortitude.
Seven years ago, this editorial board published a lengthy series of editorials detailing the human costs of predatory lending in Alabama. Last week, President Barack Obama took the stage in Birmingham and revealed that there are more payday shops in the state then there are McDonald’s. Alabama’s scourge is known at 1600 Pennsylvania Avenue in D.C.
How’d we get here? It’s a sad, yet predictable, tale. In the 1980s and early 1990s, small-loan entrepreneurs — payday lenders in today’s parlance — began to fill a void in the banking industry. These small-loan shops offered low-income and cash-strapped consumers quick cash when they were in a bind. Banks, by then overwhelmingly corporate instead of locally owned, no longer catered well to that market.
By the mid-1990s, Alabama’s scourge reached spring bloom. The state Banking Department wrote cease-and-desist letters to 150 lenders who were violating the interest cap. Lawsuits ensued. In essence, nothing changed. And in back-to-back years, the Legislature modified the Small Loan Act to allow approximately 190 percent APR (in 2002) and created the Deferred Presentment Services Act (in 2003), which allowed up to 456 percent APR.
If you want to point a finger at the biggest culprit, it’s that 2003 law that codified payday lending and allowed the exorbitant interest rates. It was amended at the 11th hour to remove wording that created a central database so customers couldn’t exceed borrowing limits; instead, lenders must “use a database,” which might as well have said lenders didn’t have to use any database.
That year, heading the state Senate was Lowell Barron, D-Fyffe, a one-time owner of 21 payday lending shops. And at least one politician, former Republican Senate candidate Don Stout of Fort Payne, told The Associated Press in 2006 that Sen. Gerald Dial of Lineville, then a Democrat, pushed the 2003 bill through the Statehouse. Legislative records show that Dial inserted the phrase “where available” into the database wording, according to a February Bloomberg News story.
Ominously, Dial told The Star in 2001 that payday lenders had enough clout in the Legislature to block any bill they did not favor during that year’s session.
Alabama suffers from this scourge because of past mistakes, bad decisions and misplaced political influence. We’re still searching for a cure.