Its also in the numbers that payday loans have the potential to be debt traps.
The issue has come before the Legislature numerous times over the years, with little being done to change the way the loans are issued and how the fees are charged.
This year doesnt seem to be much different. The Alabama Senate last week discussed but did not vote on a bill by Sen. Arthur Orr, R-Decatur, which will would limit fees on payday loans and give people longer time to repay them. A House version of the bill has not yet come out of committee.
Payday lenders argue that they provide a service for people in need. Listening to their arguments, one would almost think theyre in the business for humanitarian reasons.
They justify high fees by saying their clients pose a high risk. Conveniently, they ignore the fact that a high percentage of the loans are rollover loans, which critics say come about because borrowers cant afford to pay off the original loans. If a borrower does that enough times, the interest rate can top 400 percent. Its tough to pay off a loan, no matter how small, when the interest rate is that high.
Orr said a $500 loan in Alabama rolled over every two weeks for six months costs borrowers $1,137 in fees. Under his bill, fees would be $293. Orrs legislation would cap the finance charge at 45 percent, although extra fees could push the interest rate to about 180 percent.
Orrs bill could come up for a vote this week, but it wont be a surprise if its either delayed again or if its defeated. Alabama legislators pay a lot more lip service to helping citizens than they do to actually acting on legislation that might break the cycle of poverty, even with a bill that doesnt involve new taxes. Orrs bill might not be a perfect solution, but allowing 400 percent interest on loans to the people who can least afford to pay the rate borders on criminal. Its time for a change.