Birmingham, Alabama Looks For Alternatives To Payday Lenders

The biggest city in Alabama is putting its payday lenders on notice.

Bankers and community leaders in Birmingham, Alabama met Thursday to discuss developing new financial resources for cash-strapped residents, according to The Birmingham News. The meeting was part of the city's broader effort to relax the influence of payday lenders -- small loan shops where borrowers can get quick cash, but often end up sucked into a cycle of debt thanks to the lenders' high interest rates.

While Birmingham leaders say they can't force the payday lenders to close up shop, they are talking about adopting a program similar to San Francisco's Bank On initiative, which aims to offer safe, non-exploitative resources -- including financial counseling, online pay options and inexpensive checking and savings accounts -- to people who are hesitant to use traditional banks.

Nearly 8 percent of U.S. households are "unbanked," or don't have a checking or savings account, according to Federal Deposit Insurance Corporation data cited by The New York Times. Another nearly 18 percent of Americans have a checking or savings account, but still use alternative financial services.

In Alabama, more than 20 percent of households have sought loans from payday lenders, according to the Associated Press.

Birmingham's pushback against payday lenders comes at a moment when a vast number of Americans are cash strapped, pushing them to turn to an off-brand loan shop.

Thanks to high unemployment and flat wages, a growing number of Americans are struggling to simply put food on the table and cover other basic household expenses. Nearly half of all households in the U.S. are only one financial emergency away from the poverty line.

Amid such a weak economic climate, payday lenders have thrived. But consumer-protection advocates are beginning to take a hard line against the industry. Richard Cordray, who recently assumed control of the Consumer Financial Protection Bureau, has put payday loan regulation front and center on his agenda, despite protests from lenders that they provide a valuable service to borrowers in a tight spot.

Payday lenders have come under particular criticism for allegations that they target and take advantage of minority borrowers. A study by the Center for Responsible Lending found that in some regions, payday loan shops are clustered disproportionately in African-American and Latino neighborhoods, and that minorities form a large part of their customer base.