Counting payday loans in Alabama has to wait, as the project for a database on short term credits is blocked in a lawsuit. A court trial in Alabama holds a database back from tracking payday loans. According to the local press, the blockage is caused by the loan industry who is against this type of loan framework
The database was supposed to be created as a tool for enhancing the requirement that a person can only take payday loans within the limit of 500 dollars. But the financial companies lending the money filled a lawsuit against Alabama’s Banking Department to stop the enforcement of such a database last year. However, a Montgomery judge decided in favor of Alabama’s Banking Department in August. The industry was not satisfied with the ruling and filed an appeal.
According to Elizabeth Bressler, the legal representative of the Banking Department, the state is confident that a definitive sentence will soon be reached. She said in a press statement that the Banking Department would like to have a final decision in the following couple of months. The institution foresees that, provided a favorable verdict is given any time soon, the database could be up and running by June 1 next year.
Alabama’s officials already closed an agreement with a Florida based company to design the database which the legislators approved at the beginning of December. However the company cannot start its work until the lawsuit has reached a final outcome.
According to attorney Bressler, should the database be approved and established, then payday loans providers will be charged a 68 cents fee / transaction in the first year. The money will go into funding the database.
Payday loans are temporary credits provided for 14 to 30 days. Moneylenders can charge upward of 456 percent APR on the given sums. Promoters of the introduction of the database say this short-term credits actually do more harm than good, driving low-income individuals into shaky cycles of debt. As per the same advocates, this eventually leads to setting these debts by taking bigger, long-term credits.
For several years now, a coalition has lobbied for capping the payday credits interest rates at 36%. But the payday companies refused this limit, contending that interest rates are a reflection of the credit risks and claiming that their loans reach the individuals that are usually poorly served by the banking sector.
The Banking Department has contended it has the power confirmed by current legislation to set up a database. The Alabama House of Representatives passed a bill unequivocally giving the department that power. The piece of legislation was almost in the Senate but a spur of the moment amendment introduced by then-Sen. Shadrack Mcgill, R-Scottsboro, killed the act.
The database would only concern payday financial institutions. Title loan organizations are administered under the Small Loan Act, a different law, and can set their interest rates at 300 percent yearly APR.
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