Lenders: Alabama task force was unfair, created by governor as distraction from scandal

By Jessica Karmasek | Apr 18, 2017

MONTGOMERY, Ala. (Legal Newsline) - Max Wood, as the owner and operator of several title loan and payday loan lending stores in central Alabama, says he is used to the many roadblocks state lawmakers and lobbying groups have tried to create over the years to put him, and other local operators, out of business.

But even he is aghast at the state’s most recent attempt to sway lawmakers, under the direction of the now former Gov. Robert Bentley.

Bentley, a Republican who recently resigned amid scandal, in a directive issued last June, ordered the creation of the Alabama Consumer Credit Task Force.

“It was a political stunt, aimed against the industry,” Wood said of the governor’s task force.

At the time, Bentley argued the “complexity of consumer credit” and the “potential for harm” to consumers has increased over the years and consumers often face charges and fees that are “disguised in such a manner as to provide no clear guidance” as to the details of the loan products and the “true manner” of the transaction.

The task force, under Bentley’s order, was to be comprised of at least 33 members -- from various state offices, legislative committees and special interest and trade groups -- plus any additional appointments the governor deemed “necessary.”

The task force, over the next six to seven months, was expected to study and identify “areas for specific revision” and report its findings and recommendations to Bentley by Jan. 30. Those recommendations, according to Bentley’s order, could take the form of regulatory or statutory changes.

In the end, a total of 35 individuals were named to the task force. Of the 35, only three were industry representatives -- much to the chagrin of those within the short-term lending industry, including Wood.

“The majority of the members were adversaries of ours -- activist groups, people who compete with us or would like to see us go away,” he said. “There were no local operators or representatives, and no consumers.

“Instead, it was stacked with all of the people that basically hate our business.”

Ed D’Alessio, executive director of the Financial Services Centers of America, or FiSCA, said he was “extremely disappointed” that the industry was “so egregiously underrepresented.”

“This underrepresentation is clear throughout the report, and it was a missed opportunity for Gov. Bentley and his task force to hear about the important services our members provide to communities in Alabama and across the United States,” he said in a recent statement.

Wood, who also serves as president of Borrow Smart Alabama, a trade group that primarily represents consumers but was formed by the industry, said he firmly believes the task force was created to serve as a distraction.

“[Bentley] was in all this trouble in 2015 and 2016 because of this affair he was having and using state resources to cover up,” Wood explained. “So he tried to distract from the problem, and one of the distractions was this task force.”

Bentley resigned as governor April 10, effective immediately, after pleading guilty to two misdemeanor charges related to campaign finance law. He allegedly used state resources to facilitate and conceal an extramarital affair with a former staffer.

“While we had high hopes for the efficacy of the task force, it has become clear over the last eight months that there were fundamental structural problems with the task force and the review process,” D’Alessio said.

Not only were no public hearings held after the report was released -- last month, instead of January -- but the task force also declined to provide any “fully agreed upon specific recommendations” in the form of regulatory or statutory changes.

“The Task Force does wish to provide this report to offer some guidance on these critical issues and matters for use by the Governor, members of the Legislature and the public at large,” David Faulkner, chairman of the task force, wrote in a March 16 letter to Bentley.

“As expected, the many issues surrounding the existing consumer credit laws, the access to consumer credit and the importance of protecting the consumers of the State of Alabama are matters that the individual members of the Task Force were passionate about,” Faulkner, an attorney at Birmingham law firm Christian & Small LLP, noted in his letter.

He said the task force’s meetings -- of which a total of six were held, from September through February -- were “open” and often “frank discussion” revealed and produced some areas of agreement.

Those “common ground” areas mostly focused on payday loans.

For instance, according to the report, on the issue of unlicensed, Internet-based payday lenders, a majority of task force members favored taking action similar to Washington state. In Washington, payday loans made by an unlicensed lender are unenforceable and not collectable.

Task force members, according to the report, also discussed a recent statewide initiative in South Dakota regarding payday loans.

In November, South Dakota voters approved a measure that would cap interest rates on short-term loans, including interest rates on payday and car title loans, at 36 percent. Previously, there was no limit on how much interest lenders could charge on such loans.

“Some noted that an approach similar to that taken in South Dakota or a constitutional amendment/restriction may be an approach for consideration, although others noted that a comparison to other states is not always appropriate because of the differences with other consumer lending laws, and the different market that exists for other products in other states,” the report states.

“Some Task Force members expressed concern about the arbitrary nature of picking a set interest rate cap. Other members of the Task Force stated that change in this area was critical and that many past state legislative efforts did not go far enough.”

Some Alabama lawmakers already have taken the lead, introducing measures aimed at short-term lending ahead of the report’s release and despite the task force’s lack of recommendations.

House Bill 321 was introduced by state Rep. Bob Fincher, a Republican, in late February. The bill would allow for a statewide vote on a constitutional amendment that would cap payday loan interest rates at 36 percent. Currently, the average rate for such loans in the state is in the high 200-percent range or 300 percent.

Fincher argued many of these payday loans are rolled over.

“Many of the people end up paying 360 or 400 percent on a loan,” he said in a statement. “Fifty percent of the extended loans are rolled over six times or more.

“We are entrapping people in poverty and leaving them there.”

H.B. 321 has been referred to the House’s Committee on Constitution, Campaigns and Elections.

A separate, more comprehensive bill was introduced in the state Senate last month.

Under Senate Bill 284, consumers would be prohibited from obtaining car title loans. It also would establish a 30-day term on all payday loans and require an automatic three-month payment extension when a borrower can’t repay a loan during the initial 30-day term. It also would limit the number of payday loans taken out in a 12-month period.

S.B. 284, sponsored by state Sen. Arthur Orr, a Republican, was referred to the Senate’s Committee on Banking and Insurance earlier this month.

Wood said both bills would have a devastating effect on his business and other operators’.

“People argue that the fees on these loans are excessive,” he said. “And they are pretty expensive by regular banking standards.

“But there’s really no other way someone can borrow a small amount of money for a very short amount of time. The only other option, really, is by bouncing a check. There’s nowhere else someone can go and get a loan for $500.”

Banks don’t loan such amounts because it’s not cost effective, Wood noted.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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Alabama House of Representatives Financial Services Centers of America Inc. State of Alabama The State of Alabama Senate

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