Wednesday, April 1, 2015

President Obama’s visit to Alabama highlights need to regulate payday, title loan lenders

  President Obama’s visit to Alabama last week to discuss proposals to rein in predatory lenders underscores the need to regulate an industry the Southern Poverty Law Center has found traps low-income people in a crushing cycle of debt.

  The proposals from the Consumer Financial Protection Bureau include common-sense safeguards for consumers who take out payday or car title loans. Lenders would be required, for example, to determine if a borrower can actually afford to pay back a loan.

  Birmingham, the site of Obama’s visit, is one of more than 20 Alabama municipalities that have passed ordinances or moratoriums to limit the number of payday lenders operating within their communities. But these towns and cities can only do so much.

  “The Southern Poverty Law Center has seen firsthand in Alabama – and across the South – how these lenders have profited off people who could not afford the terms of their loans,” said Sam Brooke, deputy legal director for the SPLC. “Far too often, they do not act as a responsible lender and consider a person’s ability to actually pay back the loan. As our report Easy Money, Impossible Debt shows, they are far more interested in trapping their customers in a cycle of debt that only keeps them paying off the interest, week after week and month after month.”

  When the SPLC investigated Alabama’s payday and title loan industry in 2014, it found that the state’s lack of protections for consumers has created a paradise for predatory lenders. It’s one reason Alabama has four times as many payday lenders as McDonald’s restaurants.

  “These lenders have proven that they care only about profits – not ethics or fairness to consumers,” Brooke said. “The bureau’s proposed rules are based on a simple principle: You should not offer loans to consumers unless they can afford to repay them. President Obama also recognizes the importance of these safeguards. They not only protect consumers, but can help stabilize and grow our economy.”

  The rules, however, do not fully address the many abuses documented by the SPLC. For example, the current proposal still includes loopholes that could permit lenders to continue issuing loans with triple-digit interest to people unable to afford them.

  “If the South is to benefit from these proposals, we must see even stricter regulations that will force these lenders to behave in an ethical way,” Brooke said.

  This article was published by the Southern Poverty Law Center, an Alabama-based civil rights organization.

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