PARCA Study Confirms Payday Lending Reform Should Be High Priority of Alabama Legislature

BIRMINGHAM, Ala., Dec. 3, 2018 /PRNewswire/ -- The Community Foundation of Greater Birmingham contracted with PARCA to conduct statewide polling on attitudes toward payday lending in Alabama. PARCA is a 501(c)3 nonprofit organization working to inform and improve state and local government in Alabama through independent, objective, nonpartisan research.

Polling was conducted in January 2017 and again in July 2018.  The results demonstrated that Alabama citizens are increasingly opposed to payday loans and believe reform is necessary to prevent abusive lending practices.

In 2017, about 60% of voters had a negative opinion of payday loans, believing that they should be banned or restricted.  In 2018, this negative opinion had grown to almost 85%, with the biggest growth in those who believe that these loans should be restricted (9.8% in 2017 and 31.8% in 2018).  This indicates a growing acknowledgment that policy reform is necessary in Alabama.

Other states have banned payday loans, put limits on the interest rates lenders may charge, have required lenders to verify the borrowers' ability to repay, or have extended the loans to 30 days.

Respondents of the PARCA poll were asked about implementing these policies in Alabama. Below are the results of the statewide polling of strategies that other states have successfully implemented.

Interest Rate Cap 

• "Do you support or oppose limiting maximum interest rates on payday loans to 36% in Alabama?" (2017)
• "The Alabama legislature should pass legislation capping the maximum interest rates on payday loans at 36%." (2018)

Results show that in 2017, nearly two-thirds (64.7%) of voters favored limiting interest rates on these loans to 36%.  By 2018, this sentiment had grown to nearly three-fourths (73.6%) of voters.

Ability to Repay

In 2017, the poll asked if payday lenders should be required to assess a borrower's ability to repay before extending this type of loan. Nearly three-quarters (72.2%) of respondents support the idea.

In the past, the Alabama State Legislature has indicated a reluctance to pass legislation on an ability to repay requirement and the State Banking Department has expressed concerns about the enforcement of such rules.

Extending the Loan to 30 Days

In Alabama, payday loans currently have a minimum loan term of 10-14 days. Extending the loan to 30 days would equate it to virtually any other bill or loan that consumers have.

The poll found that nearly 75% agreeing or strongly agreeing with the statement- "The Alabama legislature should pass legislation placing payday loans on a minimum 30-day repayment schedule."

Profitability

While substantial majorities indicate support for these proposed reforms of payday lending practices, the payday industry has argued that any legislative changes would harm their industry and put them at risk for going out of business. The poll explored this concern with the general public.

During the study voters were asked whether or not they agreed with this statement- "State law should be changed to protect Alabamians from high interest rates and runaway debt, even if it reduces the profitability of payday lending businesses."

• Overall, about 80% agreed or strongly agreed with the statement.

The PARCA polling results clearly demonstrate that Alabamians believe that payday lending must be reformed to prevent abusive lending practices and trapping borrowers in an ongoing cycle of debt.  They are less concerned about the effects that reform will have on the industry. 

Analysis

While capping interest rates at 36% as other states have done would essentially end payday lending in Alabama, extending the minimum loan term to 30 days would only affect the 20% of current borrowers who take out 13 or more loans in a 12-month period. These findings are based on reporting conducted of the State of Alabama's Deferred Presentment Services Program and created for the Alabama State Banking Department by Veritec Solutions, LLC.

A borrower always has the option to pay off the loan before the 30 days, just as any consumer loan can be paid in full at an earlier date. This would also reduce the effective APR on current loans from 456% interest to 220%.

"We all agree that people need access to small term loans. However, it is clear through the statewide polling that the vast majority of citizens want to see the abusive nature of the industry curbed. A solution that allows the payday industry to still charge up to 220% APR will allow the industry to flourish while providing relief to the most chronic users who take out between 13 and 35 loans a year," said Christopher Nanni, President of the Community Foundation. "This 30-Day-to-Pay compromise solution is a win-win which allows consumers a reasonable amount of time to pay back their loans while allowing the industry to remain profitable. Our hope is that the returning and newly elected Alabama legislators will listen to the electorate and make payday lending reform a priority this session."

For more information, visit www.altoxicproblem.com.

Media Contact: Holly Lollar, 205-807-3759, [email protected]

SOURCE The Community Foundation of Greater Birmingham