Governor Robert Bentley on Wednesday announced a consumer protection measure aimed at helping people avoid excessive amounts of debt from payday loans. The measure will also help lenders by providing a method to ensure they are complying with state law.
Payday loans are short-term, high interest cash advances on a paycheck that are due 10 to 31 days in the future. Under the Alabama Deferred Presentment Services Act (ADPSA), payday lenders are not to issue loans to customers who currently have more than $500 in existing payday loan debt. However, there is currently no uniform, statewide database to ensure compliance with the act. The result is that lenders and borrowers can easily exceed the $500 limit with loans from multiple lenders, which then leaves the borrower with mounting debt and high interest rates.
To address this issue, Governor Bentley announced new regulations on Wednesday that will establish a centralized payday loan database in Alabama. Governor Bentley said the statewide database would protect both borrowers and lenders alike.
"First, this will protect consumers by helping them avoid excessive debt from multiple payday loans," Governor Bentley said. "If someone has several loans at the same time, and they all carry high interest rates, it's easy for that person to get trapped in debt. This database can help people avoid that."
"Second, this database will help lenders make sure that when they issue new loans, they are doing so in compliance with state law," Governor Bentley added. "The database will provide the information they need to help ensure they are following laws that are already in place."
The regulations that will establish the central database were issued through the Alabama State Banking Department.
State Banking Department Superintendent John Harrison said the regulations will address the over-issuance of payday loans.
"These regulations represent a step forward for both consumers and lenders in Alabama," Harrison said. "These regulations offer an opportunity to help Alabama consumers avoid some particular problems related to payday loans. The regulations will also help the numerous payday lenders offering this loan product in compliance with state law."
The regulations announced Wednesday also require that lenders operating in Alabama, whether they are located in Alabama or online, must have a deferred presentment service license in order to issue loans. A payday loan transaction entered into without a license will be uncollectable and unenforceable in Alabama.
The State Banking Department will immediately begin work to establish the central database. A request for proposal will be issued soon to seek company bids on building the database. The goal is to have the database operational by January of 2014.
In addition to the central database and license regulations, 11 other regulations were issued to clarify language in the ADPSA. All regulations are available at the State Banking Department's website at www.banking.alabama.gov