A little bit of history about Alabama
Sitting above the Gulf Of Mexico, Alabama is in the south eastern region of the US and it is the 30th largest state. Often lauded as the ‘Heart of Dixie’, this beautiful state has a mass of inland waterways as well as some large industrialized cities, the most heavily populated being Birmingham which lies almost in the center of the state. There are 67 counties in Alabama.
Like most of the southern states, Alabama was subject to long term economic hardship before World War 2 as the bulk of residents were heavily dependent upon agriculture which was the basis of the state economy. Alabama has a climate that provides a lengthy growing season but it is also prone to tornadoes and hurricanes which often wipe out entire crops.
Changes to the economy in Alabama
During the second world war, there was an increase in the level of prosperity for Alabamans as many rural inhabitants flocked to the cities to work in manufacturing industries related to the conflict. The change from an economy based on farming to one that includes many diverse businesses such as finance, aerospace, manufacturing and the production of automobiles meant that urban industry began to grow and expand. This was especially true after the 1990s and the 21st century economy in Alabama also includes health care, retail and mineral extraction.
One interesting fact that may have a bearing on the payday loans market in Alabama is that there is no law implementing a minimum wage. The state employers uses the federal minimum wage which is $7.25 per hour and the municipalities are not allowed to raise this in any other given locality. This meant that when the authorities in the city of Birmingham attempted to raise the MW to $10.10 per hour, the bid was voided by the state legislators.
Large employers in Alabama
The five largest employers in Alabama are a mix of state organizations and the military. The US Army post, Redstone Arsenal, employs the most people and this is followed by the University of Alabama which also includes the state hospital.
The state of Alabama is ranked as second for the lowest tax burden in the whole of the US.
Looking down the list of other large employers it is clear that the state provides many jobs but there are some large exceptions like Wal-Mart, Boeing, Mercedes and Hyundai which represent a good part of the private sector. In fact, the increase in automotive manufacturing has been a major driver behind the economic growth in Alabama and since 1993 there have been 67,800 jobs created in this industry.
Taxes in Alabama
Residents working in Alabama pay a maximum of 5% personal income tax and this rate applies to those earning any amount over $3,000 per year. The general sales tax rate is 4% but this does not include the extra sales tax levied in cities like Mobile which demands 10%. These income tax figures are low compared to some states like California where rates are up to 13%. But, in many states there is no personal income tax at all. The income tax for the poorest paid people in the state is the highest in the US and many families that take them living on wages below the poverty line still must pay tax on their earnings.
The state of Alabama is ranked as second for the lowest tax burden in the whole of the US but nevertheless there are many low income families who are struggling and these are the people who make use of payday loan lending. All the states have different legislation and regulations for issuing legal short term loans and now we can look at those that are specific to Alabama.
Regulations about payday lending in Alabama
What is a payday loan
It is worthwhile reiterating the definition of a payday loan before looking at the regulations for legal loans in the state of Alabama. Put simply, a payday loan is one that is issued for a small amount of money over a short period of time. This kind of loan is also conditional upon a higher rate of interest than rates charged by a bank.
A payday loan is one that is issued for a small amount of money over a short period of time.
In Alabama payday loans are also referred to as ‘deferred presentment transactions’. There are some basic rules for payday lending in the state and these refer to the terms of the loan, the limits that can be borrowed and the limit of collection fees that can be charged if there is a late or missed payment.
Main terms of payday loans in Alabama
Terms for payday loans state that the maximum amount which can be borrowed is $500. The length of the contract may not be less than 10 days and cannot be more than 31 days. The APR (Annual Percentage Rate) depends upon the length of the contract and is higher for shorter term loans. Lenders charge 456.25% APR for a 14 day loan and 206.05% APR for a 30 day loan. Fees and finance charges for payday loans must not exceed 17.5% flat rate per month and there is also a limit of 3% per month should the customer default on payments.
Examples of a payday loan
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Limits of debt
Although the maximum amount of loans is not clearly defined in the regulations, customers may only rollover a loan once and after the full repayment of one loan borrowers can apply for another. After two consecutive loans have been repaid in full, another loan may be taken out the next business day without any cooling off period. Lenders must allow for a repayment plan for anyone who is struggling to make repayments.
Limits of collection fees
Customers who fail to make repayments on time have some protection on collection limits. Lenders may only charge a maximum of $30 for non sufficient funds i.e. if a payment is bounced. Attorney fees are limited to 15% of the value of the loan so if you are taken to court the costs cannot escalate higher than this amount.
In addition, a lender may not take you to court unless the bounced payment is returned because the bank account has been closed. So, legitimate borrowers who are finding it hard to make payments will not face criminal proceedings as long as their bank account remains open.
Payday loans lenders in Alabama
Figures show that in 2013 there were around 1,700 stores offering short term loans making the average amount lent per store 3,541 in total. Over 300,000 people are taking out payday loans each year and those who are unable to get a store loan are going online.
Many of the online lenders are located in a different country and some are making use of a loophole allowing lenders to set up on tribal grounds that are exempt from the local laws and financial regulations. These dubious online lenders are being pursued by both the state and federal governments because they are not complying with the local Alabama regulations for payday loans. So, it is important to be sure that the lender you choose complies fully with the laws of the state where you live.
Some facts for potential borrowers
The Southern Poverty Law Center has published some facts about short term loans that will help you to decide whether this kind of loan will be beneficial to your current situation. One of the most important pieces of information published concerns the model of the loans business which depends upon ordinary people using payday loans for day to day living. Unethical lenders often prey on those who are experiencing a downturn in their luck and offer loans that customers will find hard to pay back. This can start a downward spiral into debt so never take up this kind of loan unless you are confident that you can make the repayments in full and on time.
Alabama has four times more short term loan lenders than it has McDonalds so you can see that this is a lucrative business especially when customers continue to renew loans because they cannot pay off the principle amount borrowed. Furthermore, some unethical lenders offer higher sums than the applicant requests and this makes borrowing even more costly as the interest payments are higher.
Some figures for payday loans in Alabama
In the last two months of 2015 there were 46,000 payday loans taken out each week with over 300,000 people using this kind of borrowing. So, in this period there were 462,209 payday loans totaling $146 million in payday stores in Alabama. These figures does not include those who used online payday lenders.
Who borrows the money?
Statistics for 2015-2016 show that 5.1% of the residents of the state took out a payday loan and the average amount borrowed was $358. As in other states, females took out more loans than males and the highest percentage of borrowers came from the age group 25-29.
Those on lower incomes borrowed more than higher earners and renters borrowed more than home owners. A higher number of married people took out loans but if you add together singles, divorced and those who were widowed they amount to 53% of the total amount of loans issued.
Rules for licensed lenders in Alabama
Since 2004 lenders must be legally licensed and a separate license is required for each business location. Lenders must also prove that they have financial assets of at least $20,000. Lenders cannot get a license if they have been convicted of a crime and applicants for a license or shareholders of the business must not have a record of suspension by any institution of the United States or any court findings of fraud. The fee for a lenders license is $500.
These rules are put into place so that only legal lenders may operate in the state and they are there for the benefit of customers. The regulations also help to prevent unlicensed loan sharks so before taking out any contract for a short term loan it is important to view the license granted by the state authorities.
Online payday loan companies
Out of the top five payday lenders in the state there is only one that operates online only and this company charges up to 651% APR with a fee of $75 per application.
The regulator for Alabama
The Alabama Banking Department is the regulator for all lending in the state so if you are offered a loan that does not comply with the above rules you can contact the regulator with a complaint.
Understanding your rights
Taking out a cash advance to help you through to your next paycheck can often be helpful. But, you should only accept a loan from a lender who is fully licensed and who adheres to the laws of the state where you live. There are many online lenders who are fully licensed so it is a matter of doing some research when you are looking for financial assistance in times of an emergency.
If you are finding it a struggle to cope with financial problems there are some agencies that can help. The Alabama Department of Human Resources Food Assistance Division and the Low Income Home Energy Assistance Program are just two of the state organizations that can come to your aid.
Easy to use online credit
The simple applications for online credit are changing the face of lending in a lot of states in the US. Many applicants appreciate the ease of applying through a website and funds can be transferred directly into a bank account. When the payment for the loan becomes due it is taken out directly from the same account and as long as you ensure that there are sufficient funds available, the transaction is simple and pain free.
Using online credit is also time saving and you can apply directly from your home. The online licensed lenders must clearly show the options available, the APR charged and all ethical lenders will make credit checks so that you do not borrow more than you can afford to repay. The laws and regulations regarding payday loans in the US are not the same throughout the whole of the US. The above rules apply only to Alabama and the authorities are pursuing those lenders who fail to comply.