Editor’s note: This is the third part in a look by the Times-Journal at the payday loan business.

 

Relief may be coming in 2014 for Selma residents stuck in cyclical debt.

State legislators and Selma officials say they are looking into ways to combat high interest rates from payday loan businesses.

State Rep. Darrio Melton (D-Selma) is a co-sponsor on one of two bills, currently being drafted, to lower interest rates on payday and title loans. Melton said he is morally and ethically opposed to letting the payday loan companies continue to charge astronomical interest rates for short-term loans.

“These payday companies should be ashamed of themselves,” Melton said. “The people of Alabama deserve better than this. They deserve fair business practices that help lift them up, no bring them down.”

State Patricia Todd (D-Birmingham), the lead sponsor on the payday loans bill, said even lowering the interest rates to 100 percent would be a significant victory.

Many payday loan businesses in Selma charge interest rates of more than 450 percent for a maximum of $500. The most common type of loan sets a deadline of 14 days for repayment. Critics of the industry say the interest rates are too high for Alabama residents to pay debt off in a timely manner.

“If you don’t have $300 to pay for car repairs on Monday, the chances of you having the money to pay off the loan in 14 days is pretty nonexistent, so you keep paying the interest rate and the original debt keeps growing,” Todd said.

Community Financial Services of America starkly opposes Todd’s assessment. The organization compares its interest rates to other late fees. For example, a $100 credit car balance with a $37 late fee equals a 965 percent interest rate, according to CFSA’s website.

“There is no statistical evidence to support the ‘cycle of debt argument often used in passing legislation against payday lending,” its website says.

CFSA’s representatives did not return requests for comment.

Todd may have a difficult time getting her legislation passed. She said many legislators in Montgomery either receive campaign donations from the payday loan industry or own loan businesses.

In the last two months of 2013 alone, Alabama Lenders PAC — a political action committee representing payday businesses — donated more than $35,000 to Alabama legislators’ campaigns, according to the Alabama Secretary of State’s office.

Todd also sponsored a bill aimed at lowering interest rates on payday loans during the 2013 legislative session, but it stalled in the Senate. She cited industry lobbying efforts and legislator ownership of payday loan business as the reason behind the bill stalling.

Selma City Councilwoman Susan Keith said she would also try to fight payday businesses by emulating a move by the Montgomery City Council.

In September the Montgomery City Council voted to halt licensing of new payday loans businesses. Keith said a similar move in Selma could be a good idea. She is proposing to introduce a moratorium on renewing and issuing new business licenses for payday loan stores.

“Exploiting poor people is a terrible way to make a living,” Keith said. “It’s just legal loan sharking.”