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Payday Loan Database Survives Legal Challenge

By Lee Hedgepeth
Alabama Political Reporter

MONTGOMERY – A Montgomery judge has dismissed a lawsuit filed against the Alabama Department of Banking by about a dozen payday lenders alleging that the state agency overreached by implementing a payday loan database, a move the lenders claimed had no basis in state law.

In late 2013, Governor Robert Bentley announced that new regulations would be rolled out by the Alabama Banking Department to help ensure that payday lenders comply with existing loan restrictions laid out under the Alabama Deferred Presentment Services Act (ADPSA), a law that was aimed at curbing what Bentley described as “excessive amounts of debt from payday loans” by providing stricter guidelines for payday lending, and preventing multiple loans to a single individual.

Within weeks, loan issuers from around the state banded together to sue the banking department in order to prevent those new regulations from being implemented.

Counsel representing loan companies such as Cash Mart, Rapid Cash, and Quick Cash filed suit in the Montgomery County Circuit Court claiming that, among other things, the new restrictions are outside of the language of the ADPSA, and that Governor Bentley and the banking department are “usurping” the legislature through their course of action.

The crown jewel of the several new regulations arising from the Banking Department is a provision that would implement a database of all payday loans in the state, and require loan issuers to check the database, at a fee of one dollar per customer, to assure that the client was not being given multiple loans that could not be repaid, in compliance with the ASPDA.

In a press release announcing the new regulatory language, the Governor portrayed the new provisions as beneficial to both lenders and borrowers:

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“First, this will protect consumers by helping them avoid excessive debt from multiple payday loans.” He then said that the “database will help lenders make sure that when they issue new loans, they are doing so in compliance with State law.”

However, the lenders did not quite buy into what the Governor is selling (or lending?).

They not only say that the database is extra-statutory, but that an imposition of a one dollar charge per customer is an illegal tax also not sanctioned by the legislature.

Outside of the legal realm, the groups claim that the regulations will drastically reduce access to what they claim are badly needed, highly demanded loan services.

For example, the payday lending advocate Borrow Smart has suggested that based on their experiences in other regions with similar regulations, the number of payday lenders could decrease by half under the regulations.

Despite this, some states have implemented similar legislation that seems to point to pretty good results. Florida has a statute almost identical to Alabama’s, and regulations have, according to the State government, only increased transparency during the lending process.

Even further, it seems that Alabama’s cities would not mind a reduction in the number of payday lenders. The Alabama Political Reporter has reported extensively on well over a dozen cities, including Montgomery and Birmingham, that have passed some type of ordinance or zoning rule to prevent any further influx of lending storefronts. Research shows that in Alabama, the number of payday lending stores in is four times the number of McDonald’s.

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While social advocacy groups like Alabama Appleseed and the Southern Poverty Law Center have said the ruling is a positive step, efforts during this year’s legislative session by consumer advocates like these groups to pass significant reform in the area failed when a bipartisan, campaign cash backed group of legislators blocked a bill that would have capped interest rates at 36% annually, as opposed to the 456% rates that are sometimes assessed now.

Exclusive video highlights of the bills – sponsored by Rep. Rod Scott and Rep. Patricia Todd – dying in committee can be seen here.

During the few months leading up to that fatal meeting, payday and title lending companies donated a total of over $100,000 in campaign contributions to members of the legislature, $45,000 of which went to either members of the committee or members of the legislative leadership. One company, TitleMax, contributed nearly $50,000 alone.

The only member of the House Financial Services committee – the group that prevented payday reform this session – that Alabama Political Reporter has not found to have accepted payday or title lending contributions is DuWayne Bridges, R-Valley, who does not have an active principal campaign committee visible on the Secretary of State’s website.

Neither the Governor’s Office or the Banking Department have yet announced when the database will be implemented.

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