Alabama Payday Loan Laws

The Alabama payday loan laws that govern the conduct of payday loan lenders in the state is the Alabama Small Loan Act which is coded as Ala. Code § 5-18A-1 et seq. Under said law, payday loan lenders may conduct their business and provide payday loans within the state as long as they are licensed therein. Payday loans (also known as paycheck advances or simply cash advances) are deferred-presentment transactions in legal parlance. These are small, short term loans meant to tidy up borrowers until their next payday. And, the applicable law covering their operations is the Alabama Small Loan Act.

Under the Alabama Small Loan Act, anyone engaged with providing consumer loans in amounts less than $1,000 must first secure a Small Loan License for each of the location they intend to do business in. Under this law, the maximum amount that a payday loan lender may extend to borrowers is $500 with loan terms of 10 to 31 days. The law also stipulates that there should be no rollover of loans which means that loans that are unpaid on maturity should go into collection with the lenders prevented from renewing or consolidating the same. The number of loans that a borrower can get at one place in a single time was also limited to only one.

A cap on the interest rate was set at 3% per month for the first $200 of the loan and 2% per month for the balance up to $1,000. A monthly $3 monthly account maintenance fee is also allowed to be charged for monthly payments of $30 or more. The minimum repayment term for the small loan is set at one month, while the maximum repayment term is set at 25 months.

However, in lieu of interest rates, payday loan lenders are allowed to impose charges as follows:

  • Acquisition charge in an amount not exceeding 10% of the principal amount of the loan;
  • Monthly handling charge of $12 per month on loan amounts from $100 to $300; $14 per month on loan amounts greater than $300 up to $400; $16 per month on loan amounts above $400 up to $500.

It is noteworthy to mention at this point that the Alabama Payday Loan Laws are currently being challenged in court. The Alabama Banking Department tasked to oversee payday loan operations in the state has issued cease and decease orders against 150 payday lenders in 1998 but the Alabama Check Cashers Association filed a suit against it for which they got a court injunction allowing payday lenders to continue doing business in the state. In meantime an association made up of payday loan lenders based in Alabama called the Council for Fair Lending has embarked on a media campaign in an effort to keep payday loan operations legal in the face of continuing pressures from advocacy groups to repeal the Alabama Payday Loan Laws and render payday loans illegal. But for as long as the court injunction stays and the Alabama Small Loan Law remains in place, payday loan lenders will continue giving out payday loans – charging up to 17.5% interest or $17.50 per $100 borrowed which is equivalent to 520% APR.

References:

Alabama Code § 5-18A-1 et seq.

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