Last month, a group of 45 members of Alabama’s House of Representatives introduced a proposed amendment to the Alabama Constitution that would cap the interest rate a lender may charge an individual on a “consumer loan, line of credit, or other financial product.” The proposed amendment, currently known as House Bill 321, is a direct attack on the Alabama Deferred Presentment Services Act and the Small Loan Act, and it contains a proposed interest rate cap of 36 percent per year for covered loans. This is the same cap proposed by the Consumer Financial Protection Bureau (CFPB) in its June 2016 proposed rulemaking on payday, vehicle title, and certain high-cost installment loans. House Bill 321 has now been referred to the Alabama House of Representatives’ Committee on Constitution, Campaigns and Elections.
On March 7, 2017, another far-reaching bill was introduced in the Alabama Senate. This bill, Senate Bill 284, also targets all lending institutions, including traditional banks. Under existing law, for a loan in which the principal amount is $2,000 or more, the parties may agree to any rate of interest so long as it is not “unconscionable.” Senate Bill 284, however, proposes a 60 percent annualized interest rate cap on loans greater than $2,000. Additionally, the bill would prohibit consumers from obtaining car title loans, which are currently governed by the Alabama Pawnshop Act. The bill would also establish a 30-day term on all payday loans and require an automatic three-month payment extension when a borrower is unable to meet his or her repayment obligations within the initial 30-day term. It would also cap the number of payday loan transactions that a borrower can enter into during a 12-month period. Senate Bill 284 has been referred to the Alabama Senate’s Committee on County and Municipal Government.
House Bill 321 and Senate Bill 284 follow numerous other bills that have been introduced in the Alabama Legislature over the past few years that seek lending reform. This trend toward legislation that is specifically aimed at the payday, title and other small-dollar consumer loan industry is likely to continue, both in Alabama and across the country.