Reform payday lending, respect free market

By SLADE BLACKWELL / Guest Columnist

There are four times as many payday lenders in Alabama than there are McDonald’s. I run a business for a living, so I understand the role credit plays for businesses and individuals. Sometimes the unexpected happens: Your car breaks down, the pipes at your home burst, or you lose your job. Even the most frugal sometimes need a loan to get through a rough financial patch.
But we have a problem. Right now there is not a reasonable balance between filling the need of low-credit/no-credit consumers and usury. It is time for the Alabama Legislature to stand up, make the tough decision – the right decision – and strike a common sense balance that respects the principles of the free market.
Under current law, payday lenders can charge up to 456 percent annual interest rates for 14-day payday loans and 300 percent APR for title loans. These over-the-top interest rates are trapping borrowers in a vicious cycle of poverty and crushing debt. Frequently, the borrower winds up taking out multiple loans to cover their past financial need. Then they are unable to get ahead and pay down the principal on the first loan resulting in a dispiriting spiral into more debt.
Often, the people applying for payday loans have no other recourse to pay for an unexpected financial hardship – the unexpected doctor’s bill or the AC that needs repair. We need reform to protect the consumer from these kinds of predatory interest rates and make it easier for people to achieve financial prosperity.
That is why I have introduced the payday lending fairness bill (Senate Bill 335) that unanimously passed the Senate Banking and Insurance Committee, which I chair. The goal is to make the payday lending industry fair, transparent and also to protect consumers. Currently, most payday loans have a repayment period of two weeks with unlimited rollovers. My bill will extend the period of time people have to repay a loan to six months, and if the customer is unable to pay the outstanding balance in full within those six months, there would be a grace period where the customer can pay the remaining balance in three equal monthly installments.
The intent of this legislation is two-fold: Give the consumer more time to pay back the loan and stop the endless cycle of back-to-back payday loans.
The payday lending fairness bill will bring much needed reforms to the payday lending industry without completely shutting down a lender-of-last-resort for those who need one.

Slade Blackwell is an Alabama state senator who represents portions of Shelby County.