Car title loans are short-term loans, generally at a relatively high rate of interest. Each state has the authority to enact consumer protection laws governing the lending practices of car title lenders. In Alabama, since the general assembly does not view car title lenders as official financial lending institutions, the state imposes few restrictions on them. Instead, car title lenders are pawnbrokers, according to Alabama law.
Alabama Pawn Shop Act
To legally conduct business in Alabama as a title pawn lender, the Alabama Pawn Shop Act requires businesses apply for a license to do so. Since car title lenders are nonrecourse lenders, they fall under the Alabama Pawn Shop Act. As compared to a recourse lender, the pawn broker does not have a legal right to demand repayment of the original vehicle loan. Instead, its only recourse is to take possession of the vehicle when the borrower does not repay his car title loan.
Legality
Under Alabama law, as long as car title lenders obtain a pawn broker's license pursuant to the Alabama Pawn Shop Act, they may conduct business providing car title loans to consumers. However, they must comply with the banking department's rules and state's financing laws. The Pawn Shop Act does not apply to vehicle loan lenders or banks that provide financing to vehicles. Instead, these entities are subject to the Alabama Consumer Credit Act ("Mini Code"), the Alabama Mortgage Brokers Licensing Act or the Alabama Small Loan Act.
Lending Terms
Pawn transactions in Alabama must be for one month, and the maximum interest that pawnshop brokers can charge is 25 percent monthly. According to Section 5 of the Alabama Code, the Pawnshop Act requires pawnshops to comply with the state's interest and finance charge limits. Furthermore, the banking department has the legal authority to conduct on-site inspections of a pawnshop's records to ensure it is complying with the state's consumer protection laws.
Considerations
Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.
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