Learn more about predatory lending and what community leaders and legislators are doing to protect Alabama citizens.

There is an epidemic happening in our community. Toxic lending, also referred to as predatory lending, is a crippling system of debt that affects hundreds of thousands of people in Alabama. In 2015, over two million payday loans were taken out, with each borrower taking on an average of eight loans per year. The most startling fact: these loans have an Annual Percentage Rate (APR) of up to 467%.  

Taking Steps to End Predatory Lending in Alabama

April 7, 2017

Redstone's President and CEO Joe Newberry gestures to Dr. Neal Berte during the Alabama's Toxic Lending Problem press conference.

There is an epidemic happening in our community. Predatory lending is a crippling system of debt that affects hundreds of thousands of people in Alabama every year. In 2015, over two million payday loans were taken out, with each borrower taking on an average of eight loans per year. The most startling fact: these loans have an Annual Percentage Rate (APR) of up to 467%.

"Predatory Lending: any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford."- Debt.org article

When hard times arise, many people turn to payday lenders or title loan companies to make ends meet. What might start out as a one-time need often turns into a cycle; generally involving loan after loan with interest rates of over 400%. This cycle of debt is a reality for 1 in 4 Alabamians. 

For instance, AARP states that "studies show that the average payday loan borrower is trapped in debt for 5 to 7 months of the year. If a borrower takes out $300 and the interest is due biweekly, this would cost $575 to $785 in interest payments alone."

As the interest fees and debt load increases, many individuals find it impossible to keep up, continuing the cycle. These payday and title loan lenders, "prey on low-income individuals and families during their time of greatest financial need – intentionally trapping them in a cycle of high-interest, unaffordable debt and draining resources from impoverished communities," says a report by the Southern Poverty Law Center.

Redstone's CEO Joe Newberry thinks it's time to take action against these exploitative and immoral lending practices. "They are taking advantage of Alabama citizens," Joe stated at the Alabama's Toxic Lending Problem press conference, held on April 3. 

Community leaders discussed upcoming legislation to combat predatory lending during the Alabama's Toxic Lending Problem press conference.

You can watch the full press conference on our Facebook.

In 2017, Alabamians are projected to pay $125,216,000 in payday fees and $356,575,005 in title loan fees, totaling $481,791,005 in fees, according to a study by the Center for Responsible Lending. This ranks Alabama as the 6th highest state in payday and title loan fees.  

"We have decided to make it a strategic initiative at Redstone Federal Credit Union® to break the cycle that we have seen over and over again of what payday lenders and title loans do," Joe went on to say. He described how Redstone is helping break the cycle with alternative loan options, which help members reach financial well-being.

The press conference included leaders from across the state of Alabama, including Rep. Anthony Daniels, Sen. Arthur Orr and Don Gowen. Each explained why payday and title loan reform is so desperately needed for the state of Alabama. 

"This bill is not about putting payday lenders out of business, it is about providing fair and equitable access to credit," Sen. Arthur Orr said of Senate Bill 284. He went on to discuss how the bill would, "reduce the likelihood that an individual would be stuck in the debt cycle."

Rep. Anthony Daniels believes predatory lending reform will happen with help from the newly proposed bills.

A second bill, House Bill 321, is also in the works. It proposes an interest rate cap of 36 percent per year on certain consumer loans, lines of credit and other financial products. 

"It's time that we stand up for the consumers of Alabama and the people of Alabama, and pass some meaningful reform that will help us moving forward," said Rep Anthony Daniels, who has seen the detrimental impact of payday and title loans on his own family. 

If you or someone you know is trapped in the payday loan cycle, there is help and support available. Here is an extensive list of payday loan alternatives available throughout the state of Alabama. You may also want to look into resources from our partner BALANCE or read this article on ways to end the payday loan cycle

Financial Education at Your Fingertips

We've partnered with BALANCE to give you another resource for financial education and guidance! Free financial counseling and education for all the financial milestones in life. 

See More

Leave a Comment

 

*
*
*



 

Equal Housing LenderThis credit union is federally insured by the National Credit Union Administration.

Redstone is an Equal Credit Opportunity Lender.

This content is provided for informational and educational purposes only and considered accurate as of the date posted. Views and opinions expressed in comments do not constitute an official endorsement by Redstone Federal Credit Union® or its affiliates. Redstone encourages you to seek professional advice for your personal situation before making any financial decision and is happy to assist you at any of our branch locations.

Must be RFCU® member to obtain or use any product or service. Must open a share savings account to join RFCU. A $5 minimum balance is required to open a share savings account and must be maintained in the share savings account at all times. Age and other restrictions may apply.