The Alabama Small Loan Act was amended to add a closing fee under paragraph (m) of Section 5-18-15. This is the section of the Small Credit Act known as the “Alternative Rate” provision.
The Alabama Small Loan Act applies to loans up to $1500. Paragraph (m) provides an alternative rate of charge to the tiered structure provided for in paragraph (a) and the account maintenance fee permitted in paragraph (b). Paragraph (m) allows a licensed lender to charge a 10 percent closing fee and an installment processing fee that varies between $12 per month and $26 per month depending on the size of the loan.
After the act is signed into law, with the passage of HB 335, a licensed lender may charge a closing fee not exceeding four percent of the loan amount, or $50, in addition to the closing fee and installment account processing fee. The closing fee can be paid from the proceeds of the loan principal and funded by the lender. If prepaid in full, the closure fee collected is subject to a Rule of 78s refund, with a minimum retention of $25. This is the same type of refund as the prepaid installment account processing fee. In such a case, no refund of the entry fee is required.
If the closing fee is funded by the lender, the financing amount must include the fee as part of the financing amount. This amount is then deducted from the total payments (along with other authorized fees) to arrive at the funding amount.
No doubt more questions will arise. So stay tuned.