Currently, the default late charge for Alabama first-lien loans is 5% of the unpaid installment if payment is not made within 15 days from its due date. The DocMagic software defaults to this late charge based on a provision of the Alabama's Interest and Usury Statute that the late charge may be freely negotiated between the parties as long as it is not unconscionable. See §§ 8-8-1 et seq.

However, there is another statutory scheme, Alabama's Consumer Credit Act (commonly referred to as the "Mini-Code"), that regulates late charges. The Mini-Code provides that when a scheduled payment in a consumer credit transaction is in default for 10 days or more, the creditor may charge and collect a late charge not exceeding the greater of $10 or 5% of the amount of the scheduled payment in default, not to exceed $100.

The Mini-Code also addresses licensing issues and provides for a number of exemptions for, among others, FHA-approved mortgagees and certain designated supervised financial institutions. Failure to comply with the licensing provisions of the Mini-Code renders a loan void as to both principal and interest.

Due to conflicting case law regarding the applicability of the Interest and Usury Statute and customer inquiries, DSI is modifying its late charge default for Alabama first lien loans to comply with the Mini-Code. The promissory note for first-lien Alabama loans will still reflect the late charge as being "5% of the overdue payment of principal and interest" if the installment payment is not made within 15 days from its due date. However, a late fee addendum to the promissory note will automatically be included in first-lien Alabama loan packages that provides for a late charge in accordance with the Mini Code, with a 15-day grace period.

Customers who are not subject to the Mini-Code may request removal of the late fee addendum from their Alabama closing packages by contacting the Customer Service Department at (800) 649-1362. If you have any questions regarding the late fee addendum for Alabama first-lien loans, please contact the Compliance Department.