A recent report by Citizens for Responsibility and Ethics in Washington shows that Alabama, Florida and Kentucky had five of the 10 members of Congress receiving the most campaign contributions from the payday loan industry during the 2008 cycle. Of those five, Alabama had three.
U.S. Sen. Richard Shelby, R-Tuscaloosa, was Alabama's top-ranked friend of the payday loan industry, pulling in $25,560 last year (fourth highest in the nation and first among congressional Republicans). His Senate colleague Jeff Sessions, R-Mobile, was good for fifth in the nation, reporting $25,150 from payday lenders. And the eighth biggest congressional recipient of payday loan money — more than any other House Republican — was Rep. Spencer Bachus, R-Birmingham, at $22,500.
Alabama's dominance in this ranking isn't just an embarrassing glimpse into the realities of campaign financing. It's a legacy that's visible every day in our cities and towns, where colorful payday loan stores cluster densely among auto title loan outlets, cash advance shops, and tax preparers offering refund anticipation loans. These establishments, some of which are open 24 hours a day, offer high-interest, short-term loans to hard-luck consumers. Many tack on a wide variety of fees, extraordinary penalties and late charges that trap borrowers in a cycle of debt. And a steady flow of cash in state and local elections makes sure the cycle continues.
The public policy arguments against predatory lenders are familiar. Usurious loans have been condemned since biblical times. One recent law review article claims that for 1,000 years, debates over usury were "arguably the marquee intellectual struggle in Western commercial history." But it doesn't take the wisdom of Solomon to see it's simply a bad idea for consumers to dig themselves deeper into debt, especially in this turbulent economic climate.
So why does Alabama continue to allow this sort of behavior by lenders? We can't pin the blame only on our congressional delegation. The powerful payday industry is lining campaign pockets in Montgomery, too.
Consider, for example, the Alabama Lenders PAC. This group reported to the secretary of state that in 2006 it gave $10,000 to Drayton Nabers' campaign for Alabama Supreme Court and $2,500 each to judicial candidates Tom Woodall, Lyn Stuart and Glenn Murdock. The lenders' PAC gave more than $27,000 during that electoral cycle, spreading its wealth to state politicians of both parties.
The PAC's focus on Alabama's judiciary is particularly interesting in light of recent history. Over the objection of Alabama Arise and other advocacy groups, the Legislature passed a law in 2003 allowing payday loans to continue at triple-digit annual percentage interest rates. The bill's drafters used the term "deferred presentment instruments" for the transactions, avoiding the term "payday loans." Two years later, the state Supreme Court determined that these transactions had been subject to regulation under the Small Loan Act but said little about the excessive interest rates allowed under the new law, which were not at issue in the case. In the end, the Legislature had merely created a new category of transaction for which excessive interest rates are legal.
When it comes to good public policy on predatory lending, other Southern states are leaving Alabama in the dust. Arkansas is on the front line of the national struggle to protect consumers from predatory loans. It has effectively capped payday loans at 17 percent annual interest. Georgia's reforms also have been touted. Florida, Tennessee and South Carolina are not ideal models of reform, but they maintain stronger regulations on predatory lenders than Alabama. Our state and Mississippi represent the worst of the South: a frontier of "anything goes" lending where the poor are left to their own devices to read complicated contracts and comprehend the implications of default.
Whether making toxic waste or toxic loans, no company thinks it needs more rules. Fortunately, the current disastrous consequences of a hands-off government may have disabused an entire generation of the mythology of voluntary corporate self-regulation.
Defenders of the payday industry are quick to point out that many consumers might need access to short-term loans to cover unexpected costs — and they're right. Clearly, low-income Alabamians do need access to credit. But society's need for responsible lending should not justify triple-digit interest rates and exorbitant fees buried in fine print. That's just exploitation. And other states are managing fine without it.
It's hard to find leaders who are out front taking a stand against the powerful payday lobby. If the Alabama Legislature prioritizes campaign contributions over reforms, maybe municipal leaders will take the initiative to flex zoning muscle to clamp down on the industry. Otherwise, Alabama will be left waiting for federal intervention, as when Congress stepped in three years ago to prohibit predatory lending to members of the armed forces.
As annoying as those flashy signs and TV commercials are, the deeper consequences of predatory lending haven't yet prompted a public demand for change. In the meantime, we'll continue to dominate the rankings, and Alabama borrowers will continue to pay the price.
Stephen Stetson is a policy analyst for Arise Citizens' Policy Project, a statewide coalition of 150 congregations and organizations that promote public policies to improve the lives of low-income Alabamians.