Alabama database of payday loans still on hold amid court fight

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MONTGOMERY, Alabama — A database to track payday loans in Alabama remains on hold because of a court fight.

The Montgomery Advertiser (http://on.mgmadv.com/1t5tfxQ ) reported the system isn't being implemented while the loan industry tries to block it.

The database is aimed at improving enforcement of a $500 limit on the amount of payday loans a person can have. But payday lenders sued Alabama's Banking Department to block creation of the system last year.

A judge in Montgomery ruled against the industry in August and the industry appealed.

Banking Department attorney Elizabeth Bressler says the state hopes to have a final decision soon.

"We hope to have one in the next couple of months," she said. "Right now, if we have one and everything goes well, we anticipate having the database up by June 1."

The state signed a contract with a Florida company to build the database, and legislators approve the deal earlier this month. But the work remains on hold because of the litigation.

If the database can be established, payday lenders would be charged a fee of 68 cents per transaction for the first year to fund it, Bressler said.

Payday loans are short-term loans lasting between 14 and 30 days. Lenders can charge upwards of 456 percent APR on the loans, and advocates of reform say the practice pushes the poor into unsustainable cycles of debt, which are often serviced by taking out additional loans. A coalition has pushed unsuccessfully to cap payday loan interest rates at 36 percent for several years.

The payday industry has opposed the limit, arguing the interest rates reflect the risk of the loan and saying they provide service to people generally underserved by the banking industry.

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