

Another View: Single database would protect borrowers from payday-loan predators

8:46 AM, Sep. 28, 2013  |  Comments
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MONTGOMERY, Ala. -- It's an indefensible position, but payday lenders are defending it anyway. There is no credible reason to oppose the creation of a central database for payday loans, yet these lenders, nonetheless, are fighting the state Banking Department's sensible attempt to enact this reasonable reform.

Under state law, no borrower is supposed to have more than $500 in these ultra-high-interest loans. Given the vicious spiral of debt that this kind of borrowing can trigger, that's an important consumer protection.

A central database of all payday loans would ensure that the limit is observed.
Without such a database, the limit is impossible to enforce, which leads to borrowers becoming trapped in nearly inescapable depths of high-interest debt.

Payday lenders now use multiple databases to check for loan eligibility, so if a would-be borrower doesn't appear in a particular database, he or she likely will get the loan even though the borrower may have other loans that push the debt over the $500 mark. A central database for all payday loans would eliminate that, which is why the Banking Department's proposed regulation is so plainly needed.

Even before the department announced its plans, industry officials were attacking the idea. One executive declared it "wouldn't work."

Nonsense. Of course it would work. If payday lenders are feeding information into multiple databases now, surely they can just as easily - if not more easily - feed that information into a single database. It is absurd to suggest otherwise.

If payday lenders wanted to follow the law and see that the loan limit was observed, they would embrace the department's proposal. They would welcome a single database that eliminates any concern that a would-be borrower might have other payday loans outstanding.

That they do not welcome this database, and in fact, vigorously oppose it, is deeply telling. This is not about customers or convenience; it's about money, about lucrative loans at scandalous interest rates, about creating situations in which borrowers have to pay back vastly, unconscionably more than they borrowed.

Consider the profits to be reaped from multiple loans at staggering interest rates, some of them taken out to repay other loans. The $500 loan limit is crucial, but it might as well not exist under the current system of multiple databases.

The lawsuit filed this week by several payday lenders charges that the Banking Department is overstepping its regulatory authority by proposing the single database. That's a dubious claim. State Banking Superintendent John Harrison says the department did its due diligence before proposing it. In light of the industry's undeniable influence in the Legislature, displayed anytime a regulatory measure surfaces, we are confident the department is acting responsibly here.

Payday lenders claim they fill a necessary niche in the state's financial marketplace. Maybe so, but even if that's true, they simply cannot be allowed to dodge the law's loan limit provision.

--The Montgomery (Ala.) Advertiser

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