The Alabama Small Loan Act has been amended to add a closing fee under paragraph (m) of Section 5-18-15. This is the paragraph of the Small Loan Act known as the “alternative rate” provision.

The Alabama Small Loan Act applies to loans up to $1500. Paragraph (m) offers an alternative rate of charge to the stepped-rate structure provided by paragraph (a) and the account maintenance fee permitted by paragraph (b). Paragraph (m) permits a licensed lender to charge a 10 percent acquisition charge and an installment account handling charge that varies in amount from $12 per month to $26 per month, based upon the size of the loan.

Once signed into law, with the passage of HB 335 in addition to the acquisition charge and the installment account handling charge, a licensed lender may collect a closing fee in an amount not to exceed the lesser of four percent of the loan amount or $50. The closing fee may be paid from the proceeds of the loan amount and financed by the lender. If there is prepayment in full, then the closing fee collected is to be refunded by the Rule of 78s, but with a minimum retention of $25. This is the same refund method as applicable to the installment account handling charge in the event of prepayment. No refund is required for the acquisition charge in such an event.

If the closing fee is going to be financed by the lender, then the Amount Financed Itemization will need to disclose the fee as part of the Amount Financed. This amount will then be subtracted from the Total of Payments (along with other authorized fees) to arrive at the Amount Financed.

No doubt, there will be other questions that will arise. So, stay tuned.

Please Note: This is the two hundred second blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.