A payday lender in Jefferson County said he’s seen a recent decrease in the short-term loans taken out by Alabamians, but advocates for more regulation on that industry are worried more people will turn to loans as businesses remain closed.
“If the economy goes south, so does our business,” said Max Wood, a payday lender and president of Borrow Smart, a payday lending industry group.
Payday and title loan companies continue to operate in Alabama amid the shutdown of “non-essential” businesses in an effort to slow the spread of the new coronavirus.
Dev Wakeley, a policy analyst for the progressive advocacy group Alabama Arise, wishes payday and title loan companies had been closed by Gov. Kay Ivey last week.
“We’re dealing with a situation where a lot of people will be harmed,” Wakeley said about the global COVID-19 pandemic and resulting economic fallout. “The last thing we need is for people to exacerbate that and make money off of it.”
Wood and others in the industry argue that payday loans provide a necessary service and that if they weren’t available, people would seek unregulated loans online.
More than 60,000 Alabamians filed for unemployment benefits last week, up from nearly 10,000 the week before.
Wood said it’s too early to see trends in lending. The Alabama Department of Banking, which monitors the number of loans to enforce a $500 per-person cap, didn’t have any March numbers as of Monday.
But Wood said that usually in late February and March, people pay off their loans with their tax refunds. According to data from the banking department, March 2019 was a comparatively low month for loans but was still above 120,000.
Alabama Arise has lobbied for years for more time for borrowers to payback the short-term loans
With payday loans, borrowers pay a flat fee of up to $17.50 per $100 to borrow money for a period of 10 to 14 days. Advocates have argued that if they can’t pay it back, they get trapped in high-interest cycles of debt.
A bill by Sen. Arthur Orr, R-Decatur, to give borrowers up to 30 days to repay the money instead of what can be 10 to 20 days, was killed in February on an 8-6 vote in the Senate Banking and Insurance Committee.
“Pretty much every exploitative lending practice is something we have concerns about this time,” Wakeley said.
He said there are other options for people needing access to money because of the coronavirus, including traditional banks and credit unions that offer “payday alternative loans.”
Last year, 189,231 Alabamians took out 1.6 million payday loans worth about $563.6 million from lenders in the state, according to the banking department. They paid about $98.4 million in fees.
Wood said in a bad economy, more loan defaults are possible. The default rate is already 15% to 20%, Wood said.
That will be a problem for the self-funded lenders, he said.
“If this goes on for more than another week or two, it’s going to be pretty unpleasant,” Wood said.
As of this weekend, non-essential businesses throughout the state were ordered to close their doors through April 17 in an effort to stop the spread of the new coronavirus.
In the order, State Health Officer Dr. Scott Harris lists several “close-contact” service establishments that can’t operate until April 17, but gun stores were not a part of that list.
Guns an Essential Service
Alabama Rep. Andrew Sorrell, R-Muscle Shoals, owns Gold, Guns and Guitars, two pawn shops that sell firearms. He’s staying open.
“We are regulated by the state banking department and those are all considered essential,” Sorrell told ADN. “Anything to do with money lending and banks, all of that is considered essential.”
Sorrell said that having firearm stores continue to be open is important so that people can exercise their constitutional rights.
“People need to have access to purchase firearms,” Sorrell said.
In recent weeks, firearm sales have skyrocketed, the Associated Press reported.
Background checks — the key barometer of gun sales — already were at record numbers in January and February, likely fueled by a presidential election year. Since the coronavirus outbreak, gun shops have reported long lines and runs on firearms and ammunition.
Background checks were up 300% on March 16, compared with the same date a year ago, according to federal data shared with the National Shooting Sports Foundation, which represents gunmakers. Since Feb. 23, each day has seen roughly double the volume over 2019, the AP reported.
Some states that have ordered people to stay home have not deemed gun stores as essential businesses like grocery stores and banks. The mayor of New Orleans issued an emergency proclamation that declared the authority to restrict sales of firearms and ammunition.