Usury Laws in Alabama

All the states in the US have regulations governing the usury limit; the usury limit is the maximum allowable interest rate charged for loans, and everyone should confirm the charges applicable prior to securing a loan. In Alabama, all contracts negotiated with usurious interest rates are illegal hence unenforceable in any form of litigation in the event of default by either party bound by the agreement. The usury law, however, excludes loans made by federally regulated financial institutions (UsuryLaw.com). 

Civil Sanctions and penalties

The Code of Alabama Article 8 articulates the laws governing the practice in the State of Alabama. There ought to be a written contract in place for the applicability of the 8% interest rate cap-the general usury limitation- else a rate of 6% becomes enforceable; Section 8-8-1.2 stipulates these. Section 8-8-2 permits one lending at 6% p.a. or less to aggregate the principal amount and all the applicable interests of the loan and subsequently apportion such amounts into instalments; the instalments can be monthly, or it can take other forms of instalments with varying timeframes. Section 8-4-4 provides for the maximum cap on the interest rate for loans of $100,000 or more to the trustees of state educational institutions and the board of education of the state; the rate of interest, however, should not exceed 15% p.a. These beneficiaries lack the right to use the usury law in defense in the event that the interest rate imposed exceeds the maximum allowable rate of interest. 

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Section 8-5-5 provides that an individual of business entity may agree on the interest for a loan or credit sales as they determine if the amounts are less than $2000 and adheres to all the laws governing consumer transactions and their unconscionability (Justia.com). The beneficiaries of such loans stand not to depend on such laws to limit the interest rate charged on their loans. Section 8-6-6 articulates prescribes the rate of interest applicable to debts incurred in accordance with the National Housing Act and veterans benefits; it exempts the beneficiaries from exercising the usury laws. Section 8-7-7 excludes financial instruments such as bonds and notes from the usury law in the State of Alabama. 

Section 8-9-9 provides that the interest to be imposed on bills and notes whose value is not more than $1 circulated in Alabama without authorization by the law bear an interest of 1000% p.a.; the holder may sue on it. Section 8-8-10 provides that apart from costs, the interest imposed on judgments for paying money bear interest at 12%p.a. Section 8-8-11 articulates provisions applying for partial payments to the principal and the interest; in case of support judgments, the balance first applies to the principal and any remaining residue stands to offset the interest (Justia.com). Section 8-8-12 provides that interests paid at a rate higher than the stipulated limit are usurious hence stand not to be enforced apart from the principal; this however excludes a number of provision that the law permits and any interests paid ought to be adjusted to the principal amount (Justia.com). 

Section 8-8-13 articulates provisions on collection of financial instruments at an interest rate that exceeds 8%; unless permitted by law, bankers discounting such instruments at a higher rate stand not to enforce the collection of such amounts and any amounts paid initially as interest are reconciled with the principal and deducted. Section 8-8-14 provides the provision of a rebate in cases where a surcharge on interest is settled entirely and collection of such refunds for amounts exceeding $25. Section 8-8-15 provides for a bad check charge for all dishonored financial instruments and it further prescribes that the fee ought to increase by $1 from the preceding year (Justia.com).

Criminal Sanctions and Penalties

The state of Alabama does not have any criminal penalties or sanctions provided for violating usury laws (Simpson).

References

Justia.com. “2006 Alabama Code – Section 8-8-11 — Application of partial payments to principal and interest.” JUSTIA US LAW. 2013. Web. 26 January 2015. <http://law.justia.com/codes/alabama/2006/4653/8-8-11.html>.

—. “2006 Alabama Code – Section 8-8-12 — Enforcement of usurious contracts.” JUSTIA US Law. 2013. Web. 26 January 2015. <http://law.justia.com/codes/alabama/2006/4653/8-8-12.html>.

—. “2006 Alabama Code – Section 8-8-15 — Bad check charge; deemed not finance charge.” JUSTIA US Law. 2013. Web. 26 January 2015. <http://law.justia.com/codes/alabama/2006/4653/8-8-15.html>.

—. 2006 Alabama Code – Section 8-8-5 — Maximum rates of interest — Loans, credit sales, etc., of $2,000 or more to individuals, corporations, trusts, partnerships, or associations. 2013. Web. 26 January 2015. <http://law.justia.com/codes/alabama/2006/4653/8-8-5.html>.

Simpson, William Hays. “THE LOAN SHARK PROBLEM IN THE SOUTHEASTERN STATES.” (1954): 1. Print. 26 January 2015. <http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2583&context=lcp>.UsuryLaw.com. “Alabama Usury Laws.” UsuryLaw.com. 2008. Web. 26 January 2015. <http://www.usurylaw.com/state/alabama.php>.

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