August 9, 2014

Payday lending lawsuit dismissed

MONTGOMERY — A Montgomery County Circuit Court judge this week threw out a lawsuit challenging the state’s creation of a database to track payday loans made in the state.

Alabamians aren’t supposed to have more than $500 in payday loans at any one time, but there’s been no way to track if people loan shop from lender to lender. Legislation to set up a statewide database died last year. In September, Gov. Robert Bentley and the state banking department announced new regulations to create the database.
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A group of payday lenders soon filed a lawsuit to block the database, calling it government overreach.

On Wednesday, the lawsuit was dismissed.

“The ruling is a significant step toward ending the practice of predatory loan lending in Alabama,” Bentley told the TimesDaily in an emailed statement. “Our banking department will proceed with the central database to ensure our compliance with Alabama’s payday lending law, the Alabama Deferred Presentment Services Act. The database will help consumers avoid the trap of predatory payday loans and protect lenders from overextending loans to consumers.”

A call to Buck Wilson, of the payday industry group Modern Financial Services Association of Alabama, was not returned Thursday.

Max Wood is president of Borrow Smart Alabama, a group he said represents lenders and consumers. He said Borrow Smart wasn’t involved in the lawsuit, but he doesn’t think the creation of a database will really help consumers or the industry.

Wood said the database regulation only applies to payday lenders with storefronts, but about 50 percent of payday lending is done online.

But those in favor of more regulation of the industry said if the online lender isn’t licensed in Alabama, it is operating illegally.

Several community groups have sought for several years more regulations on payday lenders.

“This ruling is an important step toward ensuring predatory payday lenders no longer operate in the dark,” said Southern Poverty Law Center staff attorney Sara Zampierin, a member of the Alliance for Responsible Lending in Alabama. “For too long, lenders have been able to flout the law and prey upon the working people of Alabama. This database is a good first step in holding these lenders accountable, but we need the Legislature to act to put an end to their abusive practices.”

Though regulation proponents speak of annual interest rates of more than 400 percent and said the loans are designed to trap people who can least afford it, bills to restrict payday lenders have had little success in the Alabama Statehouse.

Sen. Arthur Orr, R-Decatur, in the most recent legislative session introduced a bill that would extend the amount of time people have to repay their loans — without increasing the interest rates. The legislation died, but he’s said he will try again next year.

“This is a positive development to ensure the current law is being followed that restricts the number of loans that can be outstanding to a borrower,” Orr said Thursday about the lawsuit’s dismissal. “I still believe focusing on expanding the time for repayment is a worthwhile pursuit.”