Governor Robert Bentley wants to help Alabamians avoid excessive amounts of debt from payday loans.
He announced a measure today in Montgomery to help lenders by providing them a method to ensure they are complying with state law.
A centralized payday loan database will be established in Alabama. Governor Bentley said the statewide database would protect both borrowers and lenders alike.
"First, this will protect consumers by helping them avoid excessive debt from multiple payday loans," Governor Bentley said. "If someone has several loans at the same time, and they all carry high interest rates, it's easy for that person to get trapped in debt. This database can help people avoid that."
The regulations announced Wednesday also require that lenders operating in Alabama, whether they are located in Alabama or online, must have a deferred presentment service license in order to issue loans. A payday loan transaction entered into without a license will be uncollectable and unenforceable in Alabama.
The State Banking Department will immediately begin work to establish the central database. A request for proposal will be issued soon to seek company bids on building the database. The goal is to have the database operational by January of 2014.
Payday loans are short-term, high interest cash advances on a paycheck that are due 10 to 31 days in the future. Under the Alabama Deferred Presentment Services Act (ADPSA), payday lenders are not to issue loans to customers who currently have more than $500 in existing payday loan debt. However, there is currently no uniform, statewide database to ensure compliance with the act. The result is that lenders and borrowers can easily exceed the $500 limit with loans from multiple lenders, which then leaves the borrower with mounting debt and high interest rates.
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