On Thursday, President Barack Obama visited Birmingham, Ala., to talk about the need to reform the payday and title loan industry. His choice of Alabama was no mistake. In this state, any reforms against predatory lenders have been effectively barred by loads of money the industry showers upon Alabama legislators.
Speaking at Lawson State Community College, President Obama told the audience that Alabama has four times more payday loan businesses than McDonald’s. And, according to AL.com, “like the McDonald’s dollar menu, those lenders have some nasty deals for the poor and famished.”
In this state, predatory lenders are allowed to charge interest and fees that amount to an APR as high as 461 percent. For those workers barely scraping by, taking out a $500 loan will set them back as much as $87.50. If they have any trouble paying back the loan on time, the interest and fees are compounded, creating a cycle of debt that is very difficult to break.
In Alabama, the average payday loan is $525, and most borrowers need to roll interest and fees into the next payment, and the next. In fact, most borrowers who use these strip-mall lenders become indebted to them for more than five months.
“You take out a $500 loan at the rates that they’re charging in these payday loans — some cases 450 percent interest — you wind up paying more than $1,000 in interest and fees on the $500 that you borrowed,” the president said.
Laws regulating this lending industry have been passed in 22 states, but Alabama remains a predatory lender’s paradise. Here, lenders pay state legislators thousands of dollars in campaign funds in exchange for rules that are very pro-industry but destructively anti-consumer.
According to AL.com, every member of the Alabama Senate’s banking committee received campaign contributions from predatory lenders, all in all totaling $116,000 while members of the House Financial Services Committee shared $97,000, nearly 40 percent of which went to the Speaker.