HB314

ENROLLED, An Act,

Relating to the Alabama Small Loan Act; to amend Sections 5-18-4, 5-18-10, 5-18-13, and 5-18-15, Code of Alabama 1975, to increase the lending authority and further provide for the interest rates; and to provide further for the minimum and maximum term of loans.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:Section 1. Sections 5-18-4, 5-18-10, 5-18-13, and 5-18-15, Code of Alabama 1975, are amended to read as follows:

§5-18-4.

"(a) License required. No person shall engage in the business of lending in amounts of less than one thousand dollars ($1,000) one thousand five hundred dollars ($1500) and contract for, exact or receive, directly or indirectly, on or in connection with any such loan, any charges whether for interest, insurance, compensation, consideration, or expense, which in the aggregate are greater than the interest that the lender would be permitted by law to charge for a loan of money if he were not a licensee under this chapter, except as provided in and authorized by this chapter and without first having obtained a license from the supervisor. For the purpose of this section, a loan shall be deemed to be in the amount of less than one thousand dollars ($1,000) one thousand five hundred dollars ($1500) if the net amount or value advanced to or on behalf of the borrower, after deducting all payments for interest, expenses, and charges of any nature taken substantially contemporaneously with the making of the loan, is less than one thousand dollars ($1,000) one thousand five hundred dollars ($1500).

"(b) Exemptions. This chapter shall not apply to any person doing business under the authority of, and as permitted by, any law of this state or of the United States relating to banks, trust companies, savings or building and loan associations, credit unions as defined by law, nor to any lawful, bona fide pawnbroking business, nor shall this chapter apply to any person making loans to their tenants engaged in agriculture, nor to loans by agricultural suppliers to persons whose principal business is farming, nor shall it apply to agricultural credit corporations or associations organized under an act of the Congress of the United States, nor shall it apply to the business of financing the purchase of motor vehicles, refrigerators, or other personal property, nor shall it apply to loans insured or guaranteed by the United States or any of its agencies.

"(c) Evasions. The provisions of subsection (a) of this section shall apply to any person who seeks to evade its application by any device, subterfuge, or pretense whatsoever including, but not thereby limiting the generality of the foregoing: The loan, forbearance, use or sale of credit (as guarantor, surety, endorser, comaker, or otherwise), money, insurance, goods or things in action; the use of collateral or related sales or purchases of goods or services or agreements to sell or purchase, whether real or pretended; and, receiving or charging compensation for goods or services, whether or not sold, delivered, or provided and the real or pretended negotiation, arrangement, or procurement of a loan through any use of activity of a third person, whether real or fictitious.

"(d) Penalties. Whoever violates or participates in the violation of any provision of this section shall be guilty of a misdemeanor and, upon conviction thereof, shall be punishable by a fine of not more than five hundred dollars ($500) nor less than one hundred dollars ($100), or by imprisonment for not more than six months, or by both such fine and imprisonment in the discretion of the court. Any contract of loan in the making or collection of which any act shall have been done which violates this section shall be void, and the lender shall have no right to collect, receive, or retain any principal, interest, or charges whatsoever.

§5-18-10.

"(a) Annual examinations of licensees. At least once each year and at such other time as may be deemed necessary by the Supervisor of the Bureau of Loans, an examination shall be made of the place of business of each licensee and of the loans, transactions, books, papers, and records of the licensee so far as they pertain to the business licensed under this chapter. As cost of examination, the licensee shall pay to the Bureau of Loans the actual cost of each examination, the amount of which shall be reasonably prescribed under rules and regulations promulgated by the Superintendent of Banks; provided, however, the cost for each day of examination by each examiner shall not exceed eight times the average hourly rate for auditing purposes as charged by three recognized certified public accountancy firms in the City of Montgomery, Alabama. In addition thereto, the licensee shall pay as per diem the amount authorized by law for state employees traveling inside the state in the service of the state. All such fees shall be paid into the special fund set up by the State Treasury pursuant to Section 5-2A-20, and used in the supervision and examination of licensees.

"(b) Investigations. For the purpose of discovering violations of this chapter or of securing information lawfully required hereunder, the supervisor or his or her duly authorized representatives may at any time investigate the business and examine the books, accounts, papers, and records used therein of (1) any licensee, (2) any other person engaged in the business described in subsection (a) of Section 5-18-4 or participating in such business as principal, agent, broker, or otherwise and (3) any person who the supervisor has reasonable cause to believe is violating or is about to violate any provisions of this chapter, whether or not the person shall claim to be within the authority or beyond the scope of this chapter. For purposes of this section, any person who shall advertise for, solicit, or hold himself out as willing to make loan transactions in the amount or of the value of less than one thousand dollars ($1,000) one thousand five hundred dollars ($1500) shall be presumed to be engaged in the business described in subsection (a) of Section 5-18-4.

"(c) Access to records; witnesses. For the purposes of this section, the supervisor or his or her duly authorized representatives shall have and be given free access to the offices and places of business, files, safes, and vaults of all such persons and may require the attendance of any person and to examine him or her under oath relative to the loans or the business or to the subject matter of any examination, investigation, or hearing.

"(d) Cease and desist orders; injunctions; receivers. Whenever the supervisor has reasonable cause to believe that any person is violating or is threatening to or intends to violate any provision of this chapter, he or she may in addition to all actions provided for in this chapter and in addition to all other remedies that he or she may have at law and without prejudice thereto enter an order requiring such person to desist or to refrain from such violation, and an action may be brought on the relation of the Attorney General or the supervisor to enjoin the person from engaging in or continuing the violation or from doing any act or acts in furtherance thereof. In any action, an order or judgment may be entered awarding the preliminary or final injunction as may be deemed proper. In addition to all other means provided by law for the enforcement of a restraining order or injunction, the court in which the action is brought shall have the power and jurisdiction to impound and to appoint a receiver for the property and business of the defendant, including books, papers, documents, and records pertaining thereto or so much thereof as the court may deem reasonably necessary to prevent violations of this chapter through or by means of the use of the property and business. The receiver, when appointed and qualified, shall have such powers and duties as to custody, collection, administration, winding up, and liquidation of the property and business as shall from time to time be conferred upon him by the court.

"(e) Confidentiality of examinations and investigations. Reports of examinations and investigations of the supervisor, and the books and records of licensees are to be held strictly confidential, and may not be produced, reproduced, or otherwise made available by the State Banking Department to any persons other than those within the State Banking Department unless pursuant to a lawfully issued subpoena. This subsection does not apply to disclosures in proceedings brought by the supervisor pursuant to this chapter.

§5-18-13.

"(a) Advertising, etc. No licensee or other person subject to this chapter shall advertise, display, distribute, or broadcast or cause to permit to be advertised, displayed, distributed, or broadcast in any manner whatsoever any false, misleading, or deceptive statement or representation with regard to the rates, terms, or conditions for loans in the amount or of the value of less than one thousand dollars ($1,000) one thousand five hundred dollars ($1500). The supervisor may require that charges or rates of charge, if stated by a licensee, be stated fully and clearly in such manner as he or she may deem necessary to prevent misunderstanding thereof by prospective borrowers. The supervisor may permit or require licensees to refer in their advertising to the fact that their business is under state supervision, subject to conditions imposed by him or her to prevent an erroneous impression as to the scope or degree of protections provided by this chapter.

"(b) Schedule of charges. Each licensee shall conspicuously display in each licensed place of business a full and accurate schedule of the rates of charge upon all classes of loans currently to be made by him or her.

§5-18-15.

"(a) Maximum rates of interest and charge. Every licensee under this chapter may contract for and receive as interest on any loan of money less than one thousand dollars ($1,000) one thousand five hundred dollars ($1,500) an amount at a rate not exceeding three percent a month on that part of the unpaid principal balance not in excess of two hundred dollars ($200), and two percent a month on that part of the unpaid principal balance in excess of two hundred dollars ($200) but less than one thousand dollars ($1,000) one thousand five hundred dollars ($1,500).

"(b) Account maintenance fee. In addition to the maximum rate of interest and charges pursuant to subsection (a), a licensee may enter into a contract of loan under this chapter in which the borrower agrees to pay an account maintenance fee of not more than three dollars ($3) for each month of the scheduled period of repayment of the loan provided that the scheduled monthly payments are equal to or greater than thirty dollars ($30). Such account maintenance fee shall be determined at the date of the loan, but may not be prepaid. Such fee as so determined shall not bear interest and shall constitute a part of the finance charge.

"(c) Method of computing charges.

"(1) Interest or charges under this chapter shall not be paid, deducted, discounted, or received in advance or compounded, but the rate of charge authorized by subsections (a) and (b) may be precomputed as provided in subdivision (2) of this subsection.

"For the purpose of this section, one month shall be that period of time from any date in a month to a corresponding date in the next month and, if there is not a corresponding date, then to the next day of the next month, and a day shall be considered one thirtieth of a month when computation is made for a fraction of a month.

"(2) When the loan contract requires repayment in substantially equal and consecutive monthly installments of principal and charges or interest combined, the charges or interest may be precomputed at the agreed monthly or periodic rate not in excess of that provided for in subsections (a) and (b) on scheduled unpaid principal balances according to the terms of the contract and added to the principal of the loan. Every payment may be applied to the combined total of principal and precomputed charge until the contract is fully paid. The acceptance or payment of charges on loans made under the provisions of this subsection shall not be deemed to constitute payment, deduction, or receipt thereof in advance nor compounding under subdivision (1) above.

"(d) Refunds.

"(1) When any loan contract is paid in full by cash, a new loan, renewal, or otherwise one month or more before the final installment date, the licensee shall refund or credit the borrower with that portion of the total charges which shall be due the borrower as determined by schedules prepared under the rule of seventy-eighths or sum of the digits principle as follows: The amount of the refund or credit shall be as great a proportion of the total charges originally contracted for as the sum of the periodic time balances of the contract scheduled to follow the date of prepayment bears to the sum of all the periodic time balances of the contract, both sums to be determined according to the payment schedule originally contracted for.

"(2) If the loan contract, with charges precomputed under subsections (a) and (b), is not prepaid in full but becomes partially prepaid in an amount equal to three or more installments, the licensee shall reduce the balance due by the amount that would be required to be refunded for prepayment in full on the date of the partial prepayment and compute charges as payments are made thereafter in the manner prescribed in subdivision (1) of subsection (c), or the licensee may with the consent of the borrower reschedule the remaining installments and precompute charges as prescribed in subdivision (2) of subsection (c).

"(e) Default or extension charges. If the contract so provides, when a scheduled payment is in default or delinquent for 10 or more days, the licensee may charge and collect an additional late charge not to exceed the greater of ten dollars ($10) or five percent of the amount of the scheduled payment in default. Each of the late charges permitted under this subsection may be collected only once on any scheduled payment, regardless of the period during which the payment remains in default or is delinquent. It is the intent of this subsection that if the payment date of all wholly unpaid installments is deferred or extended one or more full months and the contract so provides, the licensee may charge and collect a deferment or default charge only on the installment which is delinquent at the date the contract is extended or deferred.

"(f) Rules and regulations. In addition to the general authority granted to him or her by subsection (a) of Section 5-18-12, the supervisor may make such rules and regulations as he or she may deem necessary or advisable to insure that rebates, default charges, and deferment charges are so computed, paid to or collected from borrowers that the total charges collected by licensees under this section are substantially equivalent to charges authorized to be collected by licensees under this section.

"(g) Recording fees. The licensee may collect from the borrower the actual fees paid a public official or agency of the state for filing, recording, or releasing any instrument securing the loan.

"(h) Further charges; splitting of contracts. No further or other charges shall be directly or indirectly contracted for or received by any licensee, including insurance premiums of any kind, except those specifically authorized by this chapter or by Chapter 8 of Title 8. No licensee shall divide into separate parts any contract made for the purpose of or with the effect of obtaining charges in excess of those authorized by this section. All balances due to a licensee from any person as a borrower, or as an endorser, guarantor, or surety for any borrower or otherwise, shall be considered a part of any loan being made by a licensee to the person for the purpose of computing charges.

"(i) Installment payments; contract period. No licensee shall enter into any contract of loan under this chapter in which the borrower agrees to make any scheduled repayment of the cash advance more than 25 calendar months from the date of making the contract of loan. Every loan contract shall require payment of the cash advance and charges in installments which shall be payable at approximately equal periodic intervals; except, that payment dates may be omitted to accommodate borrowers with seasonal incomes. No installment contracted for shall be substantially larger than any preceding installment.

"(j) Interest after due date of final installment. Interest as provided in this section shall not accrue or be recovered or charged on any loan made under this chapter for any longer than six months after the due date of the final installment of principal or interest. After the expiration of said six-month period, interest may be charged at a rate not to exceed eight percent per annum.

"(k) Inducing borrower to become obligated under more than one contract. No licensee shall induce or permit any person or any husband and wife, jointly or severally, to become obligated directly or contingently or both under more than one contract of loan at the same time for the purpose of obtaining a higher rate of charge than would otherwise be permitted by this section. It shall be unlawful for any licensee to evade or attempt to evade this section by inducing a customer to borrow from another loan company in which he or she has a pecuniary interest or with whom he or she has an arrangement for exchange of customers.

"(l) Liabilities of licensees making excess charges. Any licensee making any charge in excess of the amount authorized herein, except as the result of a deliberate violation of or reckless disregard for this chapter, shall refund to the borrower the total amount of the actual economic damages which at the licensee's option may be done by payment to the borrower, or by reducing the amount of the borrower's principal obligation. If the borrower is entitled to a refund and the licensee refuses to refund within 60 days after written demand, including the filing of a legal action, the licensee shall forfeit, in addition to the actual economic damages his or her right to any finance charge. If the licensee has made an excess charge in deliberate violation of or in reckless disregard for this chapter, the licensee and the several members, officers, directors, agents, and employees thereof who shall have participated in a deliberate violation of or reckless disregard for this chapter, shall be guilty of a misdemeanor which, upon conviction, shall be punishable by a fine of not more than five hundred dollars ($500) and not less than one hundred dollars ($100) or by imprisonment of not more than six months, or by both fine and imprisonment in the direction of the court. The remedies provided herein shall be the remedy of the borrower under this chapter as the result of this violation. No action under this section may be brought more than 18 months after the due date of the last scheduled payment of the agreement pursuant to which the charge was made.

"(m) Alternative rates of charge.

"(1) As an alternative to the interest rates and charges permitted to be charged by a licensee pursuant to subsections (a) and (b) on loans of less than one thousand dollars ($1,000) one thousand five hundred dollars ($1500), a licensee may charge an acquisition charge for making the loan in an amount not in excess of 10 percent of the amount of the principal and an installment account handling charge in an amount no greater than the following:

"a. Twelve dollars ($12) per month on any loan of an amount of one hundred dollars ($100) or more, up to and including the amount of three hundred dollars ($300).

"b. Fourteen dollars ($14) per month on any loan of an amount in excess of three hundred dollars ($300), but not more than four hundred dollars ($400).

"c. Sixteen dollars ($16) per month on any loan of an amount in excess of four hundred dollars ($400), but not more than five hundred dollars ($500).

"d. Seventeen dollars ($17) per month on any loan of an amount in excess of five hundred dollars ($500), but not more than eight hundred dollars ($800).

"e. d. Twenty dollars ($20) per month on any loan of an amount in excess of eight hundred dollars ($800) five hundred dollars ($500), but less not more than one thousand dollars ($1,000).

"e. Twenty-three dollars ($23) per month on any loan of an amount in excess of one thousand dollars ($1000), but not more than one thousand two hundred fifty dollars ($1250).

"f. Twenty-six dollars ($26) per month on any loan of an amount in excess of one thousand two hundred fifty dollars ($1250), but not equal to or exceeding one thousand five hundred dollars ($1500.)

"Provided, however, that the scheduled payments are in amounts equal to or greater than forty dollars ($40) per month, inclusive of the installment account handling charge. The acquisition charge and the installment account handling charge may be calculated for the term of the contract and added to the amount of the principal. The acceptance or payment of charges on loans made under this subsection shall not be deemed to constitute payment, deduction, or receipt thereof in advance nor compounding under this subsection.

"(2) The minimum term for repayment of a loan under this subsection is three months and the maximum term of any loan made under this subsection is 12 18 months.

"(3) Upon the prepayment in full of any loan under this subsection, the installment account handling charge is subject to subsection (d), as it relates to refunds. The acquisition charge shall not be subject to refund.

"(4) No insurance charge under Section 5-18-17, no interest surcharge under Section 8-8-14, nor any other charge of any nature whatsoever, is permitted for loans made pursuant to the rate structure of this subsection, except for acquisition charges and installment account handling charges as provided under this subsection, default charges under subsection (e), recording fees under subsection (g), bad check charges under Section 8-8-15, and assessed court costs.

"(5) The loan charges allowed under this subsection may not be imposed on a loan to a borrower who has more than one loan outstanding with the licensee and upon which loan charges were imposed under this subsection.

"(6) No licensee shall file a claim against a decedent borrower's estate for any unpaid indebtedness for a loan whose charges include an acquisition charge or an installment account handling charge under this subsection."

Section 2. (a) This act shall apply to loan contracts entered into after the effective date of this act.

(b) This act shall not affect loan contracts entered into prior to the effective date of this act.

Section 3. All laws or parts of laws which conflict with this act are repealed.

Section 4. This act shall become effective immediately following its passage and approval by the Governor, or its otherwise becoming law.

Banks and Banking

Small Loans

Banking Department

Code Amended