Alabama payday loan database in limbo

A proposed database to track payday loans is still in limbo four months after a Montgomery judge initially threw out a lawsuit brought against it by the industry.

Payday loan companies have sued to stop the State Banking Department from establishing a central database, aimed at improving enforcement of a $500 limit on the amount of payday loans an individual can have out. Under current state law, payday lenders can use a number of different databases to track the number of loans out, which renders the limits almost meaningless.

In a 2013 lawsuit, payday companies said the department overstepped existing laws in establishing the database. In August, Montgomery Circuit Judge Truman Hobbs ruled against the industry, saying that the Banking Department was acting within its authority.

The industry has appealed Hobbs’ decision. Elizabeth Bressler, general counsel for the State Banking Department, said they hope to have a final ruling soon.

“We hope to have one in the next couple of months,” she said. “Right now, if we have one and everything goes well, we anticipate having the database up by June 1.”

A message left for Buck Wilson, president of the Modern Financial Services Association of Alabama, an industry group, was not returned earlier this week. A message left with Andrew Campbell, an attorney representing the payday lenders, was also not returned.

The department has signed a contract with Florida-based Veritec Solutions to establish a database. The Legislature’s Contract Review Committee approved the contract earlier this month, Bressler said. If the database can be established, Bressler said payday lenders would be charged a fee of 68 cents per transaction for the first year to support the database efforts.

Payday loans are short-term loans lasting between 14 and 30 days. Lenders can charge upwards of 456 percent APR on the loans, and advocates of reform say the practice pushes the poor into unsustainable cycles of debt, which are often serviced by taking out additional loans. A coalition of groups have pushed unsuccessfully to cap payday loan interest rates at 36 percent for several years.

The payday industry has doggedly fought those efforts, saying the interest reflects the risk of the loan and that they provide a service to a sector of the population generally underserved by the banking industry.

The Banking Department has argued it has the authority within existing law to establish a database. The Alabama House of Representatives last spring passed a law explicitly giving the department that authority; the bill was in position for passage by the Senate on the last day of the session in April, but was targeted with a last-minute amendment by then-Sen. Shadrack McGill, R-Scottsboro, that effectively doomed the bill.

The database would only govern pay day lenders. Title loan companies are governed under the Small Loan Act, a separate law, and can charge up to 300 percent annual APR on their loans.