0
0
0
0
The Alabama Department of Banking, the state’s governmental division which oversees the regulation of payday lending, is proposing to release a database which will prevent consumers from borrowing more than $500 in payday loans.
Regulation issued for centralized database of all Alabama payday loans
State Governor Robert Bentley made the announcement on September 18th. The statement released detailed the Banking Department’s action taken so far, which was to issue regulation for creating a centralized state database for all payday loans within Alabama.
Why has this decision been made?
According to Gov. Bentley, the database is necessary to fully enforce the state’s strict “$500 maximum” limit. It is thought that a complete database of who has borrowed a payday loan and what amount will help make sure that lenders act in compliance with the lending regulations on loan amounts made available to consumers.
What are the current rules for borrowing payday loans in Alabama?
A consumer can borrow a total of $500 for 31 days. A finance charge of 17.5% is the maximum that can be applied against the loan by the lender.
At the moment, Alabama state law does not allow payday lenders to make brand new loans to customers who already have more than $500 in present payday loan debt. However, issues of enforcement do arise and it is not unfeasible for consumers to manage to circumvent these rules by applying to multiple lenders and obtaining loans in excess of the $500 threshold.
What does the database mean for Alabama payday loan borrowers?
The database will be in operation by January 2014. This means that consumers will be cross-referenced and cross-matched through the database by all registered online and offline (storefront) lenders before a payday loan is given in order to check if they have an existing loan.
If a consumer already has the maximum amount outstanding, the database will flag an alert and the consumer will not be permitted to borrow another payday loan until the outstanding $500 is fully repaid.
How have payday lenders reacted to the next?
A number of storefront lenders, including Cash Mart, Rapid Cash and Quick Cash, have filed a lawsuit with Montgomery County Circuit Court in Alabama in order to prevent the database from going live. They have also directly requested that Circuit Judge Truman Hobbs intervene to block the legislation for the database from being passed. As of the time of writing, Judge Hobbs has not yet scheduled a date for the hearing, which is forthcoming.
“Big Brother Database”
The principal objection of payday lenders in Alabama to the database is that it will be too much of a “Big Brother” move, monitoring individual’s finances needlessly. Furthermore, the lenders lodging the lawsuit also claim that the database discriminates against payday lenders solely, given that it will not monitor the lending decisions of banks and online lenders. Payday lenders are also unhappy at being made to pay a fee to access the database, a move which has led to lenders claiming the state is unlawfully imposing a tax.
Online lenders not under the auspices of the database
In theory, even with the database in effect, a consumer can still circumvent the borrowing rules by borrowing a $500 from a storefront payday lender and then going online, where the database’s ambit does not reach, to borrow more money. It is therefore unclear how effective the database will be in helping consumers to manage their borrowing responsibly.
Are you an Alabama resident who has taken a payday loan from a brick-and-mortar lender? Did you find lenders willing to make loans of more than $500? Share your experiences in our comments section, below!
