Back to Basics, Continued — New Alabama Closing Cost Law for Small Loans Awaits Governor’s Signature | Denton
The Alabama Small Loans Act has been amended to add closing costs under paragraph (m) of section 5-18-15. This is the paragraph of the Small Loans Act known as the “alternate rate” provision.
The Alabama Small Loan Act applies to loans up to $1,500. Paragraph (m) provides an alternative fee rate to the tiered rate structure provided in paragraph (a) and the account maintenance fee permitted by paragraph (b). Paragraph (m) allows an approved lender to charge a 10% acquisition fee and an installment account maintenance fee ranging from $12 per month to $26 per month, depending on the size of the ready.
Once the law is signed, with the passage of HB 335 in addition to acquisition fees and installment account maintenance fees, an approved lender may collect closing fees in an amount not exceeding the lesser of four percent of the loan amount or $50. Closing costs can be paid from the proceeds of the loan amount and financed by the lender. If there is a prepayment in full, the closing costs collected must be reimbursed according to the rule of 78, but with a minimum holdback of $25. This is the same method of reimbursement as that applicable to installment account fees in the event of prepayment. No reimbursement is required for the acquisition costs in such a case.
If the closing costs are to be financed by the lender, the breakdown of the financed amount should disclose the costs as part of the financed amount. This amount will then be subtracted from the total payments (along with any other authorized charges) to arrive at the financed amount.
No doubt other questions will arise. So stay tuned.