Since then, she said, she’s paid about $14,000 in interest, and still has $3,500 left to pay on the loan itself.
“I never could make enough to pay down the principal,” Tarver said.
Tarver was among about three dozen people who gathered on the steps of the Alabama Statehouse Tuesday to call for tighter regulation on title and payday loans – short-term loans, often made to people who can’t get loans elsewhere, at rates that can amount to 400 percent annually.
A bipartisan coalition of groups — ranging from the NAACP to the Alabama Federation of Republican Women — is backing two bills in the Alabama House of Representatives, both by Democrats, that would limit those short-term loans to an annual interest rate of 36 percent. Supporters say Sen. Scott Beason, R-Gardendale, is preparing a similar bill in the Senate.
Supporters say the bills would rein in a type of lending that is keeping the state’s poorest people from getting ahead. Payday loans are loans, often made on a two-week basis, for a fee of about 17 percent of the original amount. In a title loan, the borrower essentially pawns his car, taking out a loan with the car as collateral with a promise to pay as much as 25 percent interest in 30 days. If borrowers can’t pay, they can roll the loan over for another term, potentially racking up interest of 300 to 400 percent.
Over the past two decades, payday loan stores have become a part of the Alabama landscape, lining the main streets of small towns and sprouting in the lowest-income corners of larger cities. They’ve also generated a backlash; at least 17 cities have blocked the introduction of new lenders. In Anniston, where there are at least 25 payday or title loan stores, the City Council is also considering a moratorium on new payday lenders.
Lenders say they’re providing a service for people in need who can’t get a loan elsewhere. Those lenders also say they can’t stay in business while charging 36 percent interest.
“At 36 percent APR it would be hard to operate,” said Buck Wilson, owner of Cash Mart, a company that operates 18 payday loan stores across the state. “You’d see a lot of storefronts closing around the state. Probably all of them.”
Wilson said payday and title companies can’t make a profit at lower interest rates because their customers are high-risk borrowers. Ten to 20 percent of them, he said, completely default on their loans. He said he’d never seen a situation like the one Tarver, the Montgomery title loan customer, described.
Critics of the industry say making loans with a high rate of failure is a bad business model.
“The cornerstone of responsible lending is the ability to repay,” said Shay Farley, legal director of the group Alabama Appleseed, which advocates for people in poverty.
Rep. Rod Scott, a Fairfield Democrat and sponsor of the House bill on title loans, said 51 of the House’s 105 members have already agreed to co-sponsor it.
Rep. Koven L. Brown, R-Jacksonville, said he supported the bill.
“We’ve got a lot of these payday stores,” he said. “There’s a new one in Anniston every day.”
Payday and title loan regulation bills seemed to have strong support in the Legislature last year, but competing bills emerged, and ultimately none passed. Stephen Stetson, policy analyst for the group Alabama Arise, said the loan industry used their lobbyists to slow the bills down in committee.
“The industry is smart,” he said. “It’s easier to work on eight people than to work on the entire Legislature.”
Capitol & statewide correspondent Tim Lockette: 256-294-4193. On Twitter