ATLANTA The Georgia Department of Banking and Finance has exempted any overdraft fees charged by credit unions on deposit accounts, including check, debit card or ATM transactions, from the state’s maximum allowable interest rate, known as the usury restriction.
The exemption was issued under a July 11 Declaratory Order from the Georgia Banking Commissioner Kevin Hagler referencing the parity provision of the state’s credit union statute, which allows state charters to follow similar rules and regulations as their federally chartered counterparts.
“In light of the fact that federal law authorizes federal credit unions to impose overdraft fees on members’ deposit accounts without any usury limitations, the Commissioner declares that overdraft fees imposed by state-chartered credit unions are not subject to state law usury limitations,” Hagler wrote.
Georgia has a variety of usury restrictions for financial products offered by state chartered credit unions and banks. For loans under $3,000 the ceiling is 16%. The interest rate charged for loan amounts more than $3,000 is negotiated between the lender and the borrower and stated in the written contract. However, in most cases, the maximum rate of interest, including fees, which can be charged is 5% per month, which translates to a 60% annual percentage rate. This is called the criminal usury rate ceiling.
For retail installment contracts the state’s maximum allowable rate is 13%. For auto loans under $5,000 the cap varies between 10% and 17%. Rates on loans more than $5,000 are negotiable between the borrower and the lender.
According to the order, overdraft fees imposed by federally chartered credit unions are not considered non-interest charges and fees and not subject to usury limitations. “Therefore, national banks and federal credit unions can impose overdraft fees free of any usury limitations,” wrote the Commissioner. Consequently, he wrote that state chartered credit unions can impose overdraft fees free of any state law usury limitation, but subject to regulatory scrutiny.
The Commissioner stressed the importance of credit unions being able to offer overdraft protection programs without fear of civil liability. “If credit unions are subject to the risk of substantial civil liability, as well as potential criminal liability, they may consider not offering overdraft programs in the future,” he wrote. “This would adversely affect many credit union members, some of which may only be eligible for membership at state-chartered credit unions.”
