Alabama House committee approves lighter version of payday loan reform

A House committee approved a bill today to lower fees charged by payday lenders, an issue lawmakers have debated for years.

The committee changed a bill passed by the Senate before giving it approval.

One advocate for reform said the change jeopardizes the bill with just four days left in the session because differences between the House and Senate would have to be reconciled.

House Financial Services Committee Chairman Ken Johnson, R-Moulton, offered the substitute bill.

There was opposition on the committee to making the substitution, but the committee finally approved the bill on a voice vote with no opposition.

It could move to the House floor as soon as Thursday.

Payday lenders can charge fees of up to 17.5 percent on loans as short as two weeks, which equates to an annual rate of 455 percent.

The bill would cut the allowed fee to 15 percent and require a minimum loan term of 28 days, cutting the annual rate by more than half.

The terms of the loans could be from 28 days to 45 days, a change from the current limitations of 10 days to a month.

Before the substitution, the bill would have capped monthly fees at 7 percent on the original amount borrowed and allowed at least six months to pay off the loans in installments.

Stephen Stetson, policy analyst with Alabama Arise, said he was concerned the substitution would kill the bill because of the steps it will take to reconcile the House and Senate bills.

The substitute bill approved today is similar to one by Rep. Danny Garrett, R-Trussville, who is handing Orrs bill in the House.

Garrett said Orrs bill was stronger before the substitution, but said the version approved by the committee is a good step.

This is significant reform, Garrett said. This is not the committee saying they dont want reform.

A database operated by the Banking Department shows the popularity of payday loans in the state.

The database showed 208,105 unique borrowers took out 1.3 million payday loans from when the database was established in August through mid-march. That was about 43,000 loans a week.

The average loan amount was $322 and the average fee paid was $56. The average term was 19.6 days.

Johnson said the average term of 19 days shows that most borrowers use payday loans responsibly. He said that information from the database was considered in changing the minimum loan term to 28 days.

By going to 28 days, were putting it in the range where the average person who that uses these products can pay it back, Johnson said.