Our Mission To promote and support programs, policies and initiatives that lead to asset building, asset retention, and economic security. Objectives

Alabama Asset Building Coalition

History of Payday Lending

September 29, 20114

SFEPD SEVENTH ANNUAL FINANCIAL LITERACY

LEADERSHIP CONFERENCE

Our Mission

To promote and support programs, policies and initiatives that lead to asset building, asset retention, and economic security.

Objectives• Provide support to organizations that are engaged in asset building

initiatives

• Identify asset building opportunities and implement programs & initiatives with identified partners and stakeholders

• Serve as an education and training resource for asset building practitioners

• Work with policy partners in advocating for improved public policies that support asset building for our low-to-moderate income citizens of Alabama

AABC’s Mission

HISTORY Informal lending Rise of bank lending “Black market” lending and loan sharks The rise and fall of reform

Property of Stephen Stetson of Alabama Arise

General Stores and Credit


Emergence of Bank Lending


The National Push for 36 Percent

1914 – 1943: 34 States adopt a version of the uniform small loan law

1960s: Credit Cards Emerge / Consumer Protection Laws

1980s: De-regulation and Lending InnovationDepository Institutions Deregulation and Monetary Control Act

Source: National Consumer Law Center; April 2013

1959: Alabama Small Loan Act

Legislative findings recognize the need for credit and its connection to protecting the public welfare

Sets a rate “not exceeding three percent a month” on loans for less than $1,000

Quadruples allowable interest rates - from existing usury law (8%) to 36% APR

Does not cover: banks, pawn transactions or payday loans


Breaking the Small Loan Act

1960s-1990s: Small Loan Act – 36% A rising trend in pawns shops: from guitars

to cars A new invention from TN: the payday loan Very Profitable


Fringe Lending Legitimized

Payday loans: The 1990s: Payday industry grew significantly.

Flying largely under the radar, charged interest rates far above the then-allowable 36%.

2003: Alabama Legislature carved out additional exceptions: Deferred Presentment Services Act passed, allowing 456% APR.

Title loans: 1993: Alabama Supreme Court classified title

lenders as pawnbrokers. Title loans are still governed by Alabama Pawnshop Act (300% APR).

Alabama Asset Building Policy Conference 7/24/13

HOW IT WORKS

Payday loan: Must have a

checking account Present a check post-

dated for the amount borrowed (>$500)

10 to 31 day loan term

Laden with fees; encourages rollover

456 percent APRProperty of Stephen Stetson of

Alabama Arise

HOW IT WORKS

Title loan: Must own vehicle

title No cap on loan

amounts Usually half amount

of vehicle value 30 day loan term 300 percent APR


WHAT’S WRONG?

1. The Cost2. The Cycle3. The Moral Argument


The cost of predatory loans

Strips wealth out of communities Prevents asset building and savings Prevents people from paying bills Domestic strife Property values from payday storefronts


The dangers of cyclical borrowing

Average borrower takes out 8 or 9 payday loans per year

212 days out of the calendar year in debt Designed this way: repeat borrowers are

repeat profits Debt treadmill and financial quicksand Not using them as emergency sources of

credit


The Moral Argument

The Bible on Usury“If thou lend money to any of my people that is poor by thee, thou shalt not be to him as a usuer, neither shall thou lay upon him usury.” – Exodus 22:25 (King James)

Other scriptures Leviticus, 25:35-37 Ezekiel 18: 8-17 Ezekiel 22:16-16 Proverbs 28: 6-9 Luke 6:33-35 Matthew 5:42


REFORM?


REFORM

The Military Lending Act of 2007

17 States & DCLocal ordinances

ALABAMA:No legislative action 2007-2014



Rate Caps

The AABC Fight

Mission: to Educate the Public and the Alabama Legislature

Printed booklets and educational materials Hosted Town hall meetings across the state Produced a 22 minute video with stories from victims

and experts. Showing on the AABC website, YouTube, and a DVD being mailed to the Alabama Legislative body, to faith-based organizations and community groups all over the state

Strategizing with the Alliance for Responsible Lending in Alabama(ARLA), (an organize that AABC helped to start)

What Progress has been Made?

Got The Governor’s support ARLA worked with the State Banking

Department to establish regulations requiring a data base to be establish of all payday lending establishments

Fast growing support from the community Bi-partisan support Recently got the support of the League of

Municipalities.

2015 IS OUR YEAR!

Michael E Milner Executive Director

Alabama Asset Building Coalition 601 19th Street, 2nd Floor

Birmingham, Alabama 35203 205 731-4000

205 602-9805 cell 205 731-4355 fax

[email protected]

Contact Information

Documents

Our Mission To promote and support programs, policies and initiatives that lead to asset building, asset retention, and economic security. Objectives