President Obama came to Alabama last week to defend his Consumer Financial Protection Bureau and to promote the bureau's proposed rules that would crack down on payday lending businesses that prey on the working poor.
Obama is right that payday lenders "trap hard-working Americans into vicious cycles of debt" by charging up to 456 annual percentage interest for a loan. He also is right when he says that the CFPB's proposals would be a step in the right direction.
The bureau's proposed rules would attempt to ensure that lenders would have to show that borrowers could afford to pay their loans back without borrowing again and again just to pay off the interest.
But the CFPB's proposals, as welcome as they are, would only tinker around the edges of the issue.
What Alabama really needs to do -- or more precisely, what the Alabama Legislature really needs to do -- is to follow in the footsteps of 17 other states and either cap the interest that payday lenders can charge at 36 percent annual percentage rate, or ban payday lending altogether.
The same is true of auto title lenders, who also charge extremely high rates for short-term loans.
So why did the president come to Alabama to highlight his administration's new rules on payday lending? Perhaps because the phenomenon is so prevalent here.
"Here in Alabama, there are four times as many payday lending stores as there are McDonald's," Obama said. "Think about that, because there are a lot of McDonald's."
Do those numbers sound like presidential hype? Consider this: I did a Google map search for payday loans in Montgomery, and found 17 such business locations on or within a block or so of Atlanta Highway alone. There were at least 13 on or near South Boulevard, and dozens more scattered around the city. An online Yellow Pages search found more than 100 in the tri-county area.
All of those exist despite a brief moratorium on new ones imposed by the Montgomery City Council. Following the moratorium, the council adopted zoning rules that would require new payday and title loan businesses to be at least 2,500 feet apart as well as at least 250 feet away from schools, churches, parks and houses. That still leaves plenty of room for growth for the industry in Montgomery and does nothing about all those sites grandfathered in.
Several other Alabama cities also are trying to take steps to limit the spread of payday lenders, but municipalities in Alabama have limited authority to regulate them.
So while the federal government and local municipalities try to tinker around the edges of regulating predatory lenders, the one group with the power to really do something -- the Alabama Legislature -- just sits idly by.
The president said that payday lenders would like the public to believe that these loans help people to deal with a one-time expense. He said they want borrowers to believe "our car breaks down, you got to get to work; you go there, cash a check real quick, or get a quick loan, and then that's the end of it."
"In reality, most payday loans aren't taken out for one-time expenses," he said. "They're taken out to pay for previous loans. You borrow money to pay for the money you already borrowed."
That's the cycle of borrowing that really pulls the working poor into a vortex of debt that it takes many of them months or years to escape.
Shay M. Farley, legal director of the Alabama Appleseed Center for Law and Justice, echoes many of the president's concerns.
"The impact of high-cost credit is well-documented and the facts prove the industry is misleading us," she said. "Payday loans are not short term, affordable fixes to emergency predicaments. In reality, the average borrower -- unable to afford a lump sum payment -- pays only the fee to extend the loan and ends up owing more in interest alone than they ever received from the lender."
According to Alabama Appleseed, someone who borrows $500 from a payday lender for eight weeks would pay $350 in fees and still owe the original $500. (Someone who borrows $2,000 from a title loan operation for four months would pay $2,000 in fees and still owe the original $2,000.)
"Alabama doesn't need a federal agency to tell us usury is immoral or that our local economy is negatively impacted by storefronts that prey on the financially vulnerable," Farley said. "We just need to do what needs to be done and enact meaningful interest rate caps that give borrowers a fighting chance to repay their loans."
Farley said a 36 percent interest cap is working in other states, without cutting off credit opportunities for those in need. "It will work in Alabama," she said.
But a cap will come about only if the Legislature makes it happen.
The Republican-dominated Alabama Legislature is not about to listen to Obama on any issue, even predatory lending.
But perhaps legislators will listen to a wide range of Alabama voices against payday lending -- voices that include numerous religious groups and even the Alabama Federation of Republican Women.
Or maybe they should just read their Bible, which makes it clear that usury is a sin.
Ken Hare is a longtime newspaper editor and editorial writer who now writes a column for wsfa.com. Email him at email@example.com.
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