Battling the Odds

Amid a flurry of contentious negotiations among lawmakers, payday loan industry representatives and consumer advocates, two veteran lobbyists stepped aside in a busy hallway of the Alabama State House in Montgomery.

“Just give them what they want,” Joe Fine whispered to Jerry Spencer. “We’ll change it in the Senate.”

Fine is among the state’s most powerful lobbyists. Spencer represents, among others, Express Check Services Inc.

Minutes after their conversation, the Alabama House of Representatives ended six hours of debate and voted 88-1 to pass a so-called compromise bill that would legitimize an estimated 750 payday loan shops around the state—and provide legal cover to what one activist calls “legalized loansharking.”

The hallway strategy session and the ensuing vote were testaments to the power that the young but flourishing industry wields in a legislature known for its friendliness to business and resistance to consumer-protection legislation.

If business lobbyists are confident they can get most everything they want in the Senate, then consumer activists know it will be tough going for them.

There the proposal’s prospects will be subject to the whims of Senate President Pro Tem Lowell Barron, a partner in at least six payday loan operations in northeast Alabama. Barron says he will abstain from voting on any payday loan bill, but Senate rules give him considerable power over the chamber’s agenda and over colleagues eager to stay in his favor.

As the battle raged, consumer advocates faced a tough choice: whether to accept a bill that puts some oversight on unregulated lenders but allows effective annual interest rates surpassing 400 percent, or take a chance that they could get nothing at all.

One church-based advocacy group, Alabama Arise, decided to abandon efforts to lower rates and threw its support behind proposals to give borrowers the choice of long-term repayment plans (now only available at the lender’s discretion).

Another activist group, Alabama Watch, is still calling for tougher regulation. It wants the lenders to be put under the state’s small-loan act, which limits borrowers to annual percentage rates (APRs) of 36 percent.

But Alabama Watch’s executive director, Barbara Evans, knows the odds are against her group’s stance. In Alabama, lobbyists and their clients are able to wield influence without much scrutiny, because the state’s campaign-finance laws allow political action committees to transfer money between accounts before giving to politicians, thus obscuring the actual source of funds. Low-income and blue-collar consumers, by contrast, don’t have much of a presence in the State House, save for a couple of advocacy groups that rely on persuasion alone to influence measures that come before the legislature.

Evans says this is partly because poor people are so busy struggling to survive they don’t have the time or energy to take on the people with money and clout.

“Nobody’s telling their story,” Evans says. “What are they going to do? Go on TV and say, ‘My credit is shitty, my life is ruined and I’m glad to pay 25 bucks to borrow 100 for a week’ because they’re so desperate? Poor people are used to being ripped off. They go into a convenience store in a poor neighborhood and they pay higher prices. They’ve been taught by the power structure not to complain.”

The bill passed by the House would allow a $16.50 fee for every $100 borrowed on a 14-day loan, an effective APR of 429 percent.

It does include one consumer-friendly provision pushed through by Alabama Arise: a requirement that lenders use a database to track loans, in hopes of limiting borrowers to one loan at a time.

As Southern Exposure went to press, some senators were pushing an even more industry-friendly bill than the House version. Consumer advocates promised to fight, but feared industry lobbyists had the votes.

Because it currently lacks regulatory authority, the Alabama Banking Department has no records on payday lenders or the amount of money they have on the street. But a glance at yellow pages and billboards in Alabama makes it clear that the industry is booming.

The industry’s supporters cast payday loans as a needed service for working-class citizens deemed unworthy for loans at mainstream banks. They argue that the interest rates are part of lending to “higher risk” debtors. Regulation is needed, they add, to stop some lenders from fleecing borrowers at rates well beyond the 429 percent APR allowed in the bill.

Many lawmakers have lambasted the industry, but in the same breath say they don’t want to over-regulate it.

Alabama Watch’s Evans told those lawmakers that they could kill the industry quite easily, if they truly disapprove of its practices. The solution: make the businesses explicitly subject to the Alabama Small Loan Act, already part of state code.

The act limits small lenders to a 36 percent APR, or $1.50, for a $100, 14-day loan. A state circuit judge ruled in 2001 that the act did not adequately define a loan, so payday lenders—who say they provide a “service” for a “fee” rather than a “loan” with “interest”—were not specifically subject to the act. That ruling is on appeal to the business-friendly Alabama Supreme Court. The case would become moot with the passage of any payday loan regulation.

Evans found just two supporters of her position on the House floor. One of them, Rep. Alvin Holmes, an outspoken Montgomery Democrat, reminded legislators of the faith they frequently espouse in political campaigns and public discourse.

“You people vote for the Ten Commandments and talk about your faith. . . . Jesus was about nothing but helping poor people, not taking advantage of them,” Holmes said angrily. “The Bible talks about Jesus throwing money changers out the temple. It’s talking about these people.”

For their part, Evans and her year-and-a-half-old group, Alabama Watch, aren’t going to let the losses in the payday battle stop them from fighting to build a grassroots consumer movement.

“They’re pounding us bad—they’re really going after us,” she says. “We scratch for money. But we’re determined to be independent.” The key is educating “regular Alabama folks” so they’ll have the tools and information to fight back. “We go over there and lobby. But our big activity is taking consumers over and showing them how the political system works, so they can do it for themselves.”