MONTGOMERY, Ala. (AP) - The Alabama Senate on Tuesday approved a Colorado-style restriction on the payday loan industry that would give borrowers up to six months to repay the loan.
Senators voted 28-1 for the bill that now moves to the Alabama House of Representatives.
Republican Sen. Arthur Orr, the bill’s sponsor, says the legislation would “decrease the punitive nature” of Alabama’s payday lending operations.
Payday borrowers in Alabama currently face large fees for renewing loans they are unable to repay within a few weeks. In addition to extending repayment periods, the bill would require that lenders accept installment payments.
Colorado lawmakers implemented similar legislation in 2010. A study by the Pew Charitable Trusts found that the number of payday stores in Colorado shrank by half after the change.
With payday loans, people pay a flat fee of up to $17.50 per $100 to borrow money for a period of 10 to 14 days. Critics argue that the loans become a debt trap when people borrow more money when they can’t pay off the first loan. Advocates for low-income families have for several years fought for additional restrictions on the payday loan industry.
“It’s not the bill we would’ve written for borrowers, or the approach we’ve long advocated for, but it’s a major step toward meaningful relief for borrowers,” said Shay Farley, legal director of Alabama Appleseed.
Max Wood, president of Borrow Smart Alabama, a trade group for payday lenders, said the changes could have a devastating impact on the industry and cause borrowers to turn to online lenders.
Wood said a majority of stores closed in Colorado.
“I think it will have the same effect here,” Wood said.
Wood said more than 200 licensed payday lenders have gone out of business in the last year alone in the state.
The Alabama Banking Department last year began tracking payday loans after winning a court fight over the creation of the database to enforce an existing law that limits people to having no more than $500 in payday loans at one time.
Farley said the database numbers showed heavy payday loan usage in Alabama. Numbers released by the Banking Department indicated an average of 40,000 payday loans taken out every week in the state.
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