Alabama considers payday loans legal and puts strict restrictions on how lenders and borrowers transact. However, the state did not have lender friendly rules until 2002 when it eased the laws enabling companies to lend short term loans to their customers efficiently.
Every lender in Alabama must meet all the requirements set out by the state laws before they get licensed. Also, the rules apply not only to online lenders but also to storefront lenders.
Also, to protect borrowers, the law maintains that borrowers must get informed about the regulations set by lenders before they sign loan documents.
Alabama has the 3rd highest number of payday loan lenders in the USA. Statistics show that over 200,000 Alabama residents take payday loans every year. In 2018 alone, Alabamians took payday loans amounting to $1.7 million.
However, several Alabama residents do not support payday lending. Reports show that more than half of the residents of the state support banning of the payday lending industry.
Like every state, Alabama has established laws that govern lending and borrowing of payday loans. With these laws in place, both borrowers and lenders feel protected in their transactions. Here are some of these rules;
Maximum loan amount
Emergencies can arise, prompting you to seek payday loans. However, it is not necessary to take loans that you may not pay. Or, taking massive loans and end up using all your pay in clearing them. Alabama controls this amount to protect borrowers from bankruptcy and other financial and legal issues.
Currently, the law only allows borrowers to take a maximum of $500 in payday loans. No lender or borrower should agree on any amount that exceeds the set maximum.
Loan processing costs
Most lenders exorbitantly charge fees on borrowers. It affects the borrower’s intent of taking a payday loan because the expenses make it unsustainable.
Only a fee of $17.50 can get charged on a $100 payday loan. There are no exceptions to this law because it is where most borrowers get exploited.
Loan term control
A borrower can only be pay back a payday loan within 10 days as the shortest period or the period can go up to 31 days. The pay period set depends on the amount of credit extended to a borrower, the higher the amount, the longer the period and vice versa.
Number of short term loans
Also, borrowers may get tempted to take more than one loan. Consequently, they end up having too much debt that they cannot clear on their paydays. Alabama allows borrowers only to take one quick loan at a time. There is one loan database to control this and ensure no borrower flouts the regulation.
There is a cooling-off pried set out in the Alabama payday loan laws. You cannot take another loan immediately after repaying two previous loans. You should take a one-business-day break before reapplying.
Mostly, roll-overs come into play when a borrower fails to honour the payment plan set during roll-over lender can only agree with one roll-over with their customer without charging extra interest during the new period.
Payday loan rules in Alabama protect both lenders and buyers from exploitation. However, borrowers mostly fall victim to bad lenders who either charge them too much or put unachievable payment plans. These rules have been effective in curbing all unfair practices in payday lending.