Payday loans are considered legal in the state of Alabama.
Alabama imposes a $500 amount limit on payday loans offered in the state. Payday loans can be taken for the period of 10-31 days with the maximum finance charge of 17.50% for every $100 and 456%* APR. One rollover is allowed and a cooling-off period of 1 business day after the 2d consecutive loan should pass before a person can apply for a new loan. There is a $30 NSF fee; criminal actions are generally prohibited.
If you take a closer look at the history of payday loans in Alabama, you will learn that back in the 1990s it was among 19 states involved in legislation procedure concerning small loans. The point was to set a usury cap for interest rates on such loans. However, in 2002 these measures were avoided and nowadays lending companies are able to provide short-term payday loans at very lenient terms.
Alabama Payday Lending Statutes
Payday lenders can provide loans in accordance with
Regulations apply to both online and storefront loan providers. In order to operate in the state, lenders have to comply with the following regulations:
- All lenders must be licensed.
- All lenders must disclose all the loan information (terms, interest, fees, repayment period) before the loan documents are signed.
Payday loans in Alabama are not at the present moment under the regulation of the Small Loan Act. Such conditions were very favorable for many old companies to expand and for a number of new ones to appear. At the present moment, payday lending is absolutely legal in Alabama.
Loan Amount in Alabama
Rates, fees and other charges in Alabama
- Finance charges and fees should not exceed 17.50% for every $100 of the amount advanced.
- APR equals 456.25% (*According to the Center for Responsible Lending 2019: “Typical APR based on average rate for a $300 loan advertised by largest payday chains or as determined by state regulator, where applicable.”).
Maximum term for a payday in Alabama
- “Not less than 10 days and not more than 31 days.” (Code §§ 5-18A-1 et seq.)
- Alabama state law also allows one payday loan at a time at a given location.
- In case the borrower is unable to repay in due time, one rollover is allowed.
- There is also cooling-off period presupposing that after the repayment of two continuous loans there should be made a break of one business day. In case of necessity, a repayment plan can be offered to a borrower.
- Alabama also has certain collection restrictions in cases when payday loans were delayed or were not entirely repaid. A maximum fee of $30 for non-sufficient funds (NSF) is established.
- Criminal actions against borrowers in Alabama are generally prohibited, however, in rare cases they can be initiated in case repayment check is returned due to the
More information about payday loan laws and regulations in Alabama can be found on the official Alabama State Banking Department website.
This is the major regulatory body in Alabama to turn to in case of an inquiry about small cash loans. Customers can also file a complaint against a lender via the Alabama State Banking Department by completing the complaint form. One should download the Complaint Form, complete it and mail to the appropriate address given on the complaint page.
The History of Payday Loans in Alabama
- 1994 – Alabama Attorney General issued an opinion that payday loans were to be covered by the Alabama Small Loan Act, the Mini-Code, and became the subject to Truth-in-Lending Disclosure
- 1998 – The “Alabama State Banking Department issued 150 cease and desist orders” to lenders violating the interest rate cap. (League of Women Voters of Alabama 2016 report) With no success.
- 2002 – Lenders managed to introduce certain modifications to the Alabama Small Loan Act which resulted in “an alternative rate schedule and increase of the allowable loans to approximately 190% APR (Act1959-374Sect.5-8-15, Alternative rate schedule, subsection(m)).” (League of Women Voters of Alabama 2016 report)
- 2003 – The Legislature passed the Deferred Presentment Act that carried additional exceptions for small loans and set the APR at 456% (effective as of today).
- 2013 – Payday lenders sued the Alabama State Banking Department with the aim to block the creation of a database system that was designed to prevent lenders from over-lending.
- June 2, 2016 – The Consumer Financial Protection Bureau (CFPB) proposed a Payday Loan Rule that hasn’t yet fully come into effect (expected in November 2020).
- 2018 – The legislature failed to pass SB 138. (in support of 30 Days to Pay reform that would require lenders to issue loans on a 30-day repayment schedule). Though it passed the Senate, it died in the House Financial Services committee (as many more legislatures before it, unfortunately).
- Alabama payday lending industry had been skillful enough to protect itself from state-level reforms by donating into election and lawmaking campaigns. “…in the Alabama Senate, banking committee members collectively received more than $116,000 in the last election cycle from the lending industry.” (Al.com, 2014)
- According to the Public Affairs Research Council of Alabama (PARCA) 2018 survey “Just over half (52.5%) say payday loans should be banned, while another 31.6% say they should be restricted.” This totals in 84.1% of Alabamians who are against payday lending practices in the state; and the numbers are way higher than they were last year.
- 2019 – Alabama lawmakers are growing impatient with the CFPB rule’s outcome. The upcoming 2019 Legislative Session is to have a look at the payday loan issue once again. And with the majority of Alabamians being in favor of a 36% APR rate cap and 30 Days to Pay reform, chances are that this time the efforts of consumer advocates won’t be wasted.
(As of April 2019)