Borrowing in Alabama: What State Law Allows

Payday loans: a $500 cap and a statewide database

Alabama's Deferred Presentment Services Act lets a licensed lender give you cash today in exchange for a post-dated check or a debit authorization it cashes later. The State Banking Department's Bureau of Loans licenses these lenders. The act sets these limits:

• $500 total. You can't owe more than $500 in payday loans at once, counting every lender. Lenders check a statewide database before they lend.
• Fee of up to 17.5% of the amount advanced, or $17.50 per $100.
• Term of 10 to 31 days.
• One rollover. After two loans in a row, you must repay in full, and a new loan can't start until the next business day.
• A way out. If you can't pay after the rollover, the law provides for repaying the balance in four equal monthly installments.

The math is steep. A $17.50 fee on $100 for 14 days works out to about 456% APR. Even stretched to the full 31 days, it's about 206%. You can check any offer with the APR calculator.

Title pawns: 25% a month on your car

Alabama has no separate title-loan law. Courts treat a car title as property that can be pawned, so title lenders operate under the Alabama Pawnshop Act. The act lets a pawnbroker charge up to 25% of the principal per month, roughly 300% a year. A pawn that charges more than the cap is void.

The risk goes beyond the cost. After the maturity date you get a 30-day redemption period. If you don't pay by then, ownership of the car passes to the pawnbroker automatically. There is no court process first.

What small-loan lenders may charge

Installment loans under $1,500 from licensed finance companies fall under the Alabama Small Loan Act. It caps interest by tier and limits the repayment term to 25 months.

Lenders may instead use an alternative pricing scheme: an acquisition charge of up to 10% of the loan plus a monthly handling charge of $12 to $26, depending on loan size, for terms of 3 to 18 months. A late fee of $10 or 5% of the missed payment, whichever is greater, is allowed once a payment is 10 days late.

Bigger loans follow other rules, and banks chartered in other states can often lend at their home state's rates. The APR on your disclosure is the number to compare. If your credit is weak, see what lenders typically charge on our bad credit loans page.

If you fall behind: time limits and garnishment

Alabama gives creditors six years to sue on a written promise or a loan, and three years on an open account. Which one covers credit card debt isn't settled. A federal bankruptcy court in Alabama said card arrangements "appear to be open accounts," which points to three years, but it did not decide the question. Some collectors argue for six. Don't assume an old card debt is past the limit, and read how statutes of limitations work before you pay or sign anything.

For debts from consumer loans and consumer credit sales, the Alabama Consumer Credit Act (section 5-19-15) bars garnishment before a judgment and afterward limits it to 25% of weekly disposable earnings, or the amount above $217.50 a week (30 times the federal minimum wage), whichever is less. That matches the federal limit. An Alabama court information sheet still lists 20% for consumer debts, so if more than 20% is being withheld, ask the court clerk or a legal aid office which figure the court applies.

Collectors must also follow federal rules on calls, letters and validation. See debt collectors and your rights.

Checking a lender and filing a complaint

1. 1 Verify the license through the State Banking Department's licensee search or NMLS Consumer Access before you share your bank details.
2. 2 Fix database errors. If you're told you're ineligible for a payday loan by mistake, call the database operator, Veritec, at 1-877-238-2262.
3. 3 Complain in writing to the Banking Department's Consumer Affairs office if the problem isn't solved. You can also file with the CFPB.

Common questions