The Alabama Senate has voted in favor of legislation that would extend payday loan repayment periods to six months.

The legislation is modeled after Colorado legislation passed in 2010 that, according to the Pew Charitable Trust, reduced the amount of payday and title loan establishments by almost 50% and decreased interest rates by almost 300%. Sen. Arthur Orr, R-Decatur, sponsored the bill. 

Senators voted 28-1 to send the bill to the House, which means until then people who use payday lending will still be subject to the higher interest rates and shorter borrowing periods. 

Payday borrowers in Alabama currently face large fees for renewing loans they are unable to repay within a few weeks. Along with extending repayment periods, the Alabama legislation would require that lenders accept installment payments.

Orr said the legislation is intended to "decrease the punitive nature" of Alabama's payday lending operations. Critics of the payday lending industry argue the loans trap individuals in cycles of debt and often force them to take out more loans to service payments on earlier ones. 

A payday loan database, established by the Alabama Banking Department after unsuccessful efforts by the industry to block it, found that state residents were taking out an average of $14 million in payday loans per week. Orr said payday lenders made one million payday loans in the first 10 weeks after the establishment of the database, with only 20% of the users being first-time borrowers.

Payday lenders argue that they provide a service to communities that traditional lenders don't serve and have said strict caps on interest would drive them out of business and force borrowers to go to Internet sites, where they could pay more.

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