The Consumer Credit Act, commonly referred to as the "Mini-Code," became effective on October 1, 1997. The following information pertains to licensing and prepayment requirements under the Mini-Code.
Licensing
Those engaged in the business of making consumer loans or taking assignments of consumer loans must be licensed by the administrator (Superintendent of Banks). A consumer credit transaction includes loans made to a natural person for primarily personal, family, household, or agricultural purposes. The licensing provisions of the Mini-Code apply and must be complied with before making loans in Alabama.
The following institutions are exempt from the licensing provisions: Alabama and federally chartered banks, trust companies, savings or building and loan associations, savings banks and other thrift institutions, credit unions, life insurance companies, federally constituted agencies, and lending institutions approved by the Department of Housing and Urban Development under the National Housing Act. Exempt institutions must still comply with Ala. Code §§ 5-19-1 (Definitions) and § 5-19-3 (Maximum finance charges) of the Mini-Code.
Prepayment
The Ala. State Banking Dept. Reg. § 155-2-2-.11(4) provides that:
"...prepayment penalties may be provided for in a consumer credit transaction contract and assessed in a simple interest transaction only where the original amount financed is equal to or greater than $2,000 and (a) the transaction involves an interest in real property and the creditor is either an approved mortgagee under the provisions of the National Housing Act or exempt from licensing under the Mini-Code; or (b) the creditor is a trust institution or an exempt trust as described in Section 5-19-31(a) of the Mini-Code."
Therefore, a prepayment penalty can be charged if you are exempt from the Mini-Code, are an approved lender under the National Housing Act, or the lender is a trust institution or an exempt trust. Otherwise, prepayment penalties are prohibited in all other transactions.
Ala. Code § 5-19-1 Ala. Code § 5-19-22 Ala. Code § 5-19-31(a)
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