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Taking My Ball and Going Home: Predatory Lenders Respond to Reform Efforts

By Stephen Stetson, Policy Analyst, Alabama Arise

How do predatory lenders react when a broad coalition of Alabamians line up against usury and high-cost loans?

Charles Hunter is a professional spokesperson for a highly profitable collection of businesses in Alabama – payday and auto title lenders. He recently penned a piece attacking critics of those industries, deriding “consumer advocates who have never set foot in a short term lending store and who get paid to advocate.”

One can’t help but wonder how much Mr. Hunter is paid to advocate for his position.

Let’s be clear on who he is talking about. Over the past year, several organizations have joined forces to form a coalition called the Alliance for Responsible Lending in Alabama (ARLA). Working together, groups such as the NAACP, Alabama Appleseed, AARP and the YWCA of Central Alabama (as well as my group, Alabama Arise) have pushed the Legislature to cap interest rates on the lenders’ most profitable products: 456 percent interest payday loans and 300 percent interest auto title loans.

These loans purport to help needy Alabamians, but instead take advantage of them. Far from offering a financial lifeline during a crisis, these loans trap borrowers in a destructive cycle of debt, deepening poverty and stripping wealth out of struggling families and communities.

The stories pile up like industry paychecks on Mr. Hunter’s desk: One person paid thousands of dollars on a loan without ever paying down a penny on the principal. A family’s only truck was repossessed because someone took out a title loan, resulting in a breadwinner getting fired because they couldn’t get to the job. A loan to pay for a funeral haunted the survivors for years.

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These stories don’t budge Alabama’s high-profit lenders, nor do the Bible’s prohibitions on usury. When confronted with the devastating effects of high-cost lending, Mr. Hunter questions our integrity.

During this legislative session, some of the most passionate advocacy against usury has come from the Federation of Republican Women and the Alabama Citizens Action Program (ALCAP). Is this who Mr. Hunter means when he sneers at “self-appointed advocates for the working poor”? Perhaps Mr. Hunter is confused about the difference between grassroots volunteers and people “who get paid to advocate.”

Then Mr. Hunter repeats the industry’s public position: If you put regulations on us, we’ll close up our shops and go home. They contend that they can’t survive on a 36 percent annual percentage rate.

Here’s a concept to consider: In a democracy, the people set the terms under which businesses operate, not the other way around. And if the Legislature hears the cries of the folks being gouged by payday and title loans, maybe Mr. Hunter’s association can go to other states to find customers who don’t mind being preyed upon in their most desperate hours.

For now, ARLA and our allies are content to stand with Georgia, Arkansas and North Carolina – hardly known as “anti-business” states – which have run off predatory lenders and are surviving just fine without them. The only people in those states pushing to bring back payday and title loans are industry folks with eyes on potential profits at the expense of needy borrowers.

Consider another such state, Ohio, which passed a 28 percent rate cap, considerably less than what we’re seeking in Alabama. The Republican Speaker of the Ohio House, Rep. Jon Husted, said, “We did not ban small consumer loans. Rather, we capped the interest rate at a level that created a reasonable expectation that the borrower could pay it back. They would not be trapped in a cycle of debt. We didn’t ban small loans. We banned a defective product.”

Rep. Husted almost seems to be responding to Mr. Hunter when he said, “As an elected leader, I have always tried to promote the free market. I believe in the free market. I believe that free exchange between consumers and business with limited government intervention is important to our freedom and prosperity. But products that are in the marketplace that are defective by their very nature undermine the free market. They harm consumers and invite government intervention. For those who believe in the free market, they should understand that we are preserving, not harming these principles. [The industry] talks about 6,000 jobs lost, but we don’t believe that. And we know that there are more than 6,000 people that are trapped by these products.”

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The predatory lending industry’s shrill reaction tells us that advocates have hit a nerve with an industry accustomed to getting its way. And the YWCA and Federation of Republican Women certainly don’t need me to stick up for them against a paid industry spokesperson lashing out to discredit a budding reform movement.

At the end of the day, the Alabama Legislature will have to make a decision about whether usury is the kind of “free market value” and “job creating environment” that is right for Alabama.

Until then, here’s hoping that the payday and title shops that paid for Mr. Hunter’s diatribe feel like they’re getting their money’s worth.