Consumer Loan Industry Led by Alabama Legislature | Bradley Arant Boult Cummings LLP

Last month, a 45-member group in the Alabama House of Representatives introduced a proposed amendment to the Alabama Constitution that would limit the interest rate that a lender can charge an individual for a “consumer loan, line of credit or other financial product “. The proposed amendment, currently known as House Bill 321, is a direct attack on Alabama’s Deferred Filing Services Act and the Small Loans Act, and contains a proposed interest rate cap of 36 percent. annual cent for covered loans. This is the same limit proposed by the Consumer Financial Protection Bureau (CFPB) in its June 2016 rulemaking proposal on payday, vehicle title, and certain high-cost installment loans. House Bill 321 has been referred to the Constitution, Campaigns and Elections Committee of the Alabama House of Representatives.

On March 7, 2017, another far-reaching bill was introduced in the Alabama Senate. This bill, Senate Bill 284, also targets all lenders, including traditional banks. Under existing law, for a loan where the principal amount is $ 2,000 or more, the parties can agree to any interest rate as long as it is not “unconscionable.” Senate Bill 284, however, proposes an annualized interest rate cap of 60 percent for loans over $ 2,000. Additionally, the bill would prohibit consumers from obtaining auto title loans, which are currently governed by the Alabama Pawn Shops Act. The bill would also establish a 30-day deadline for all payday loans and would require an automatic three-month payment extension when a borrower cannot meet their payment obligations within the initial 30-day deadline. It would also limit the number of payday loan transactions that a borrower can conduct during a 12-month period. Senate Bill 284 has been referred to the Alabama Senate County and Municipal Government Committee.

House Bill 321 and Senate Bill 284 follow many other bills that have been introduced in the Alabama Legislature in recent years that seek credit reform. This trend is likely to continue toward legislation that specifically targets the payday, title, and other small consumer loan industry, both in Alabama and across the country.

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