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Alabama short term lending databases could hurt consumers, businesses

Jan 09, 2019 Philip Burgess

Short term lending continues to be unfairly targeted by American lawmakers and financial officials that keep blurring the lines of legality.

Recent developments in Alabama could lead to the creation of a statewide database that collects personal loan information from lenders and consumers, a highly controversial prospect to say the least.

The Montgomery Advertiser recently reported that the Alabama State Banking Department may make a final decision regarding the possible implementation of a centralized small dollar database sometime this month. If this comes to pass, the source indicated that it would hardly be the final act in the creation of the database, as it will surely be met with litigation from various groups.

President of the Modern Financial Services Association Buck Wilson told the source that he believes the database would not be effective at promoting the financial fortunes of local businesses. He stated that consumers would simply use online short term services instead of supporting local enterprises, depriving the state of lucrative economic activity. He hinted a lawsuit will likely be filed by some entity if the database is approved.

Violates privacy rights
Wilson's organization was not the only financial group to criticize the possible creation of the short term loan database. The Council for Fair Lending of Alabama recently released a statement outlining what it believes are violations of consumer privacy laws. In particular, the source speculated that the database could be illegal given stipulations in the federal Right to Financial Privacy Act. If instituted, the collection of Alabamians' financial information by government bodies could result in serious privacy concerns, the council suggested.

Apart from possible legal shortcomings, the organization believes the database would simply be unfair, asserting that it would be wrong for state policymakers to monitor one financial service without doing the same for others. For example, it would be hypocritical to scrutinize short term lending activity more so than mortgage loan developments.

Another complaint the group outlined is that traditional banks would be exempt from having their actions included in the database, even though many offer loan products similar to small dollar credit.

Also, the creation of the database could force consumers to use unlicensed services that are unregulated because they do not wish to have their confidential monetary activity made public. Potentially, this could result in financial hardships for many Alabama residents that rely on short term lending.