MONTGOMERY, AL (WSFA) – A Montgomery County Circuit Court judge dismisses a lawsuit filed by payday lenders seeking to challenge the state’s creation of a central database to track loans . Payday loans are short-term, often high-interest loans with rates as high as 456%.
Those who brought the lawsuit said the Alabama state banking department was overstepping its authority by creating the database, capping loans at $ 500 and ensuring consumers don’t get multiple loans exceeding the limit.
The argument also said that the central fee database would come with an equal illegal tax. Justice Truman Hobbs rejected this notion, saying that there was no conflict between this statute and the regulations.
[DOCUMENT: Judge’s final order (.pdf)]
“The way this practice currently works with such short terms and such high interest rates is incredibly abusive and predatory on consumers,” says Sara Zampierin, a lawyer with the Southern Poverty Law Center, which is fighting to demand that all Payday lenders use the same database to keep track of who borrows money and how much they get.
“There is a requirement that no one has a payday loan over $ 500 outstanding. This requirement is constantly bypassed,” Zampierin said, without a single source allowing all lenders to access the same information.
“The decision is an important step towards ending the predatory lending practice in Alabama,” said Gov. Robert Bentley, “Our banking department will conduct the central database to ensure our compliance with payday loan law of Alabama, Alabama Deferred Presentation Services Act. “
The governor said the database will help both consumers by “avoiding[ing] predatory payday loan trap ”and protect lenders“ from overextending consumer loans ”.
“Virtually all of the borrowers we spoke with have faced crushing payday loan debt, owing to well over the $ 500 limit,” said Yolanda Sullivan, CEO of YWCA Central Alabama. “We are grateful that the state banking department has taken steps to protect borrowers where lawmakers have so far failed to enact broader reform.”
Payday lenders say they provide a service to customers who cannot get loans from traditional banks.
And some state payday lenders actually support the idea of a central database. Max Wood, the president of Borrow Smart Alabama, which has about 400 members statewide, opposes the idea of a central database and disagrees with the move.
Wood says the central database would only affect about 50 percent of the payday loan industry – those businesses with storefronts. This would have no effect on the growing number of online payday lenders. And in Wood’s view, regulations requiring a central database would push borrowers to the Internet.
The dismissed lawsuit was brought by the plaintiffs Cash Mart, Rapid Cash, NetCash and Cash Services, Inc.
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