Tuesday, November 8, 2011

Pay day loan legal in Georgia? | Payday loan illegal in Georgia?

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The federal Truth in Lending Act requires disclosure of the cost of credit. You must receive, in writing, the finance charge (a dollar amount) and the APR, which is the cost of credit on a yearly basis. Payday lenders are subject to this regulation.

Small loans of less than $3,000 are regulated by the Georgia Industrial Loan Act. This Act provides that persons or companies making loans and charging interest thereon at a rate of more than 8 percent (simple interest per annum) shall be subject to the Georgia Industrial Loan Act (“GILA”) and shall be required to obtain a license from the Office of the Commissioner of Insurance unless they are exempt from such licensure.
 
The Georgia Act

The Georgia Act amended the criminal code to include a new criminal offence of “payday lending,” as defined in the Act.

2.The Act was passed with bipartisan support, and was the first state law to expressly prohibit charter renting by payday lenders. In other states, Attorneys General have challenged rent-a-charter under existing usury laws, looking past the banks’ status as nominal lender and recognizing the payday lenders as the de facto loan originators. But the Georgia Act expressly states that the privileged status of out-of-state and national banks will not be extended to the banks’ purported non-bank agents where the agent retains the predominant economic interest in the loan. The Georgia Act caps small consumer loans at Georgia’s small
loan usury rate of 60 percent per year, adds stiff criminal and civil penalties for violators, and bars non-bank lenders from partnering with banks to avoid Georgia’s usury laws.

The Lenders’ Unsuccessful Challenge to the Georgia Act: An Overview Soon after the Georgia Act was passed, several payday lenders and their out-of-state bank “partners” sued Georgia’s Attorney General and Secretary of State in the United States District Court for the Northern District of Georgia, to prevent enforcement of the law against them. The district court rejected the lenders’ arguments and its decision was affirmed on appeal to the Eleventh Circuit Court of Appeals. The appeals court thereafter granted the lenders’ request for rehearing before the full court, and vacated the prior decisions. However, before the rehearing occurred, the state moved to dismiss the appeal as moot, after certain regulatory actions of the
FDIC caused the bank partners to leave the payday lending business. Over the lenders’ objection, the court dismissed the appeal, and the case was subsequently dismissed.


Is the Georgia Act preempted by the FDIA?

No. The Georgia Act does not preclude out-ofstate banks from making the payday loans, whether directly or through non-bank agents (including payday lenders) – so long as the bank is the real lender, such that it retains at least a 50 percent interest in the loan revenue. The Georgia Act does not seek to impose Georgia interest rates on out-of-state banks, and therefore is not preempted.