Alabama Pushes for Payday Lending Reform Amid Growth

Payday lending in Alabama hasn't declined in the last six months despite ongoing complaints last year from consumer advocates to rein in the practice in the state, according to the Alabama Banking Department.

A state database created last August is tracking the number and dollar amount of payday loans issued and information about whether lenders are following regulations but there hasn't been a drop in the number of loans the average payday lending customer takes out, according to Banking Department Superintendent John D. Harrison.

The database, first proposed in 2013, launched after months of legal challenges from the payday lending industry. Lenders are required to use the database, which enforces Alabama's limit of one $5,000 payday loan at a time. That limit is designed to keep borrowers from getting a loan to pay for a loan.

The average number of short-term loans issued per payday lending customer has "unfortunately not" fallen since the database went live, Harrison said.

Payday lenders have issued 1.13 million loans totaling $349 million – a weekly average of $14.9 million – to Alabama residents since the database went online, Harrison said. The average payday lending customer has taken out 5.52 loans over the past 25 weeks, a concern because payday lenders have been criticized for perpetuating a cycle of poverty as customers fall behind and take out loans from different lenders.

In Alabama, there are 900 payday lenders, more than the 890 combined total number of McDonald’s, Subways and Burger Kings in the state. 

The Consumer Finance Protection Bureau has promised since 2012 to take steps to regulate payday lending and ensure lenders aren't taking advantage of less privileged and less informed individuals. Obama also has pushed for such reforms but meaningful federal regulations have yet to materialize. Harrison said he believes it’s time for the state to step up to the plate. He said his department has access to an unprecedented amount of data about payday lending through the state database, which will allow it to generate a report by August to provide a better look at the issue over the course of a year. Harrison hopes this will be used to demonstrate the extent of the problem and help spur state lawmakers to pass reforms.

There have been some signs of industry reform. The once-widespread practice of customers borrowing hundreds of dollars from many different payday lenders has been curbed in Alabama since the database went into use as it provides a way for the state and separate lenders to learn if individuals have loans pending at other lenders and if they have already borrowed too much money.