Financial Security: A New Year’s Resolution

January 7, 2014

Shay Farley is the Legal Director at Alabama Appleseed, a nonprofit legal advocacy organization in Montgomery. The majority of her time is divided between public education and lobbying the state legislature for or against laws impacting low-income and other vulnerable Alabamians. Shay’s current focus is reforming Alabama’s payday and title lending laws.

At the start of 2014, I’m reflecting on myriad New Year’s resolutions to improve physical, mental and financial well-being. However seriously we take such pledges, it’s clear that financial security is uppermost on our minds. With the legislative session beginning January 14th, a discussion of the campaign to end exorbitant consumer loan interest in Alabama is most timely.
Too often when laws are made the human element is lost from discussion. That’s not to say that we should discount any aspect of what a proposed law can accomplish; but we should ensure, above all, that we consider the impact it will have on our citizens. The main reason I love what I do is that I help paint the picture – to legislators and the public – of how “the least of these” are impacted by policy decisions.
Unfortunately, a growing number of Alabamians tackle very real, recurring money struggles each month. When facing a financial decision in the tyranny of the moment – when there’s “more month than money” - many turn to payday and auto title loans. These small dollar loans are offered without a credit check or consideration of the borrower’s ability to repay. On their face these products don’t sound all that bad, until you learn that the interest charges are in the triple digits! Thanks to special laws passed by the Alabama legislature, lenders can charge interest of 456 percent on payday loans and 300 percent on car title loans.
Payday and title loans are marketed as a quick, convenient fix to people who may feel they have no other option. In reality, the business model is a broken promise. Approximately 75 percent of borrowers cannot repay the loan in full when due, so they extend or renew the loan by paying another fee. These renewals mask default rates and make the loans appear to be reasonable and affordable.
The Alliance for Responsible Lending, a bi-partisan statewide coalition, endorses legislation to cap allowable interest charges on payday and title lending laws at 36 percent. It's the limit placed on other small loans in Alabama and by Congress for all active duty military and their families. Some may confuse this with “governmental interference in the free market.” But, recall, it was the legislature that authorized the triple digit APR; it's up to the legislature to undo their harmful mistake and make the playing field fair again by setting 36 percent on all consumer loans.  
Finances and budgets are just as unique as they are personal. Therefore, I challenge us to set aside the typical kneejerk reaction to assign our own budget parameters or offer financial literacy education as a cure-all. Instead, let’s unite in support of moral and just laws, rather than those that incentivize businesses to lure borrowers into insurmountable debt. After all, those practices are what led to the nation’s current financial crisis.
The truest way to ensure we all meet our New Year’s resolution to be more financially stable is to make available responsible lending products that uplift individual and family security, enable the building of household wealth and encourage asset accrual. Loans offered at reasonable interest rates allow Alabamians to meet their financial needs, without further deepening their financial strain and, in turn, creates safe, healthy and vibrant communities.
Join us in urging the legislature to remedy this failed experiment with usury.

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