Alabama judge throws out payday lenders' lawsuit - Montgomery Alabama news.

Alabama judge throws out payday lenders' lawsuit

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A Montgomery County Circuit Court judge is throwing out a lawsuit filed by payday lenders who sought to challenge the state's creation of a central database to track the loans. Payday loans are short-term, often high interest loans that can have rates as high as 456 percent.

Those who brought the suit said the Alabama State Banking Department was exceeding its authority by creating the database, capping loans at $500 and making sure consumers don't obtain multiple loans that go above the cap. 

The argument also said that the fees central database would come with equal an illegal tax. Judge Truman Hobbs dismissed that notion saying there is no conflict between that statute and regulation.

[DOCUMENT: Judge's final order (.pdf)]

"The way that this practice currently operates with such short terms, and such high interest rates is incredibly abusive and predatory for consumers," says Southern Poverty Law Center Attorney Sara Zampierin who is fighting to require all payday lenders to use the same database to keep track of who's borrowing money and how much they're taking out. 

"There's a requirement that no person has a payday loan more than $500 outstanding. That requirement is constantly being skirted," Zampierin says, without a single source that allows all lenders to have access to the same information.

"The ruling is a significant step toward ending the practice of predatory loan lending in Alabama," said Governor Robert Bentley, "Our Banking Department will proceed with the central database to ensure our compliance with Alabama's payday lending law, the Alabama Deferred Presentment Services Act."

The governor said the database will help both consumers by "avoid[ing] the trap of predatory payday loans" and protect lenders "from overextending loans to consumers."

"Virtually every borrower we've spoken with has faced overwhelming payday loan debt, owing far more than the $500 cap," said Yolanda Sullivan, CEO of the YWCA Central Alabama. "We are thankful that the State Banking Department took steps to protect borrowers where the legislature, so far, has failed to enact broader reform."

Payday lenders say they provide a service to customers who can't get loans from traditional banks.

And some payday lenders in the state actually support the idea of a central database. Max Wood, the President of Borrow Smart Alabama, which has about 400 members around the state, stands against the idea of a central database and disagrees with this ruling.

Wood says the central database would only affect about 50 percent of the payday lending industry - those businesses with store fronts. It would not have any effect on the growing number of online payday lenders. And in Wood's opinion, a regulation requiring a central database would push borrowers to the internet.

The dismissed suit was brought by plaintiffs Cash Mart, Rapid Cash, NetCash and Cash Services, Inc.

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