Payday lending reform: Helping underdogs

Published 9:42 pm Wednesday, May 7, 2014

I’ve always thought of my hometown, Troy, as “The Small City That Could,” punching above its weight and exceeding expectations. This December, Trojans will mark with pride the 30th anniversary of Troy State’s epic last-second national championship football victory over North Dakota State. The city could use some of that scrappy underdog spirit today in a different kind of struggle.
Troy is home to nearly a dozen payday lenders, a kind of storefront business that makes extremely high-cost loans to borrowers seeking “quick money.” How high is that cost? Try annual interest rates of up to 456 percent, a figure that ought to make your eyes pop.
Many people see payday lending as a modern-day form of usury, an abusive practice forbidden in more than a dozen passages in the Bible. But as harmful as it is to borrowers, high-cost lending also has a crippling effect on the rest of the economy, hurting folks who have never even crossed the neon-lit threshold of a payday lender.
A recent study revealed that every $1 repaid to a payday lender actually takes $2 out of the local economy because of decreased consumer spending and increased bankruptcies. It turns out that payday loans often aren’t a lifeline to those in financial crisis – they’re more like an anchor, pulling borrowers down into a deep cycle of debt.
One problem is that the loans come due in just two weeks, and consumers usually don’t have hundreds of dollars free to repay the loan in that short amount of time. The average borrower ends up returning to a payday loan shop 10 to 12 times in a year, borrowing more and more money simply to pay fees on earlier loans. By the end, the person has paid back far more than the amount borrowed.
The payday lending industry thus far has proved resistant to even the most basic attempts at change. But polls show public support for reform stretches across the political spectrum in Alabama, and advocates for reasonable lending practices aren’t giving up.
Members of a statewide coalition seeking to reform payday lending practices will be in Troy on May 7 at the Colley Senior Center at 10 a.m. to provide more information about the disastrous effects of payday lending and what can be done about it. Other meetings are scheduled in Enterprise on May 7 at the Brown Recreation Center at 1 p.m. and Dothan on May 8 at the Wiregrass Museum of Art at 10 a.m.
This is not a political issue. It’s a matter of consumer protection. Payday loans, a relatively new phenomenon, drag too many borrowers into financial quicksand while lining lenders’ pockets. We did OK in Pike County before high-cost payday lending, and we’ll do OK once it’s gone.
Alabama soon will join Georgia, North Carolina and Arkansas as Southern states that have decided life is simply better without people extending loans to consumers at triple-digit interest rates. Just as the Trojans shocked the world 30 years ago, advocates for fair lending practices are going to drive high-interest loans off the field.
Stephen Stetson is a Troy native and a policy analyst for Arise Citizens’ Policy Project, a nonprofit, nonpartisan coalition of 140 congregations and organizations that promote public policies to improve the lives of low-income Alabamians. Email:

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