The days appear to be numbered for more than 2,000 payday-lending outlets in Georgia.
Last week the state’s House of Representatives overwhelmingly passed a bill that could essentially end payday lending in Georgia; the bill is awaiting a vote in the Senate. Supporters of the bill, which calls payday lenders “public nuisances,” said it has a good chance of reaching Gov. Sonny Perdue’s desk, because the Republican-controlled Senate passed a similar bill late last session.
Gov. Perdue, a Republican, is expected to sign the bill.
In what could become the country’s strictest payday law, the bill would require all payday lenders doing business in the state to be licensed as industrial loan companies, thus forcing them to obey state usury laws. Unlicensed lenders could receive a sentence of up to one year in jail and a $5,000 fine. Repeat offenders could be charged with a felony and receive a maximum of five years in jail or a $10,000 fine.
Payday lenders say the bill would force most of them to stop making loans in Georgia. Companies licensed and examined by the state’s industrial loan commissioner must adhere to state laws that forbid annual percentage rates of more than 60%. The typical fee for a two-week payday loan of $100 is about $15; that translates into an APR of 390%.
“This bill is not designed to help the industry, it’s designed to kill the industry,” said Steven Schlien, a spokesman for the Community Financial Services Association, a payday lender trade group based in Alexandria, Va.
Payday lending has come under fire in recent years from consumer groups, who call the loans “predatory” because of the high fees, often generated by frequent renewals that lead to borrowers’ paying more in fees than they owe in principal. The bill’s sponsors say the explosion of payday outlets in Georgia has especially hurt military personnel and elderly and low- and moderate-income individuals.
In addition to capping fees and requiring payday lenders to be licensed, the bill would also prohibit the lenders from renting bank charters, as several lenders have done to skirt usury laws in certain states.
The Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board have all denounced bank partnerships with payday lenders, so much so that the only banks that are still in the payday business are a handful of state-chartered ones regulated by the Federal Deposit Insurance Corp.
Additionally, 34 states have passed laws to regulate payday lenders as separate financial institutions; at least one state, Pennsylvania, has instructed banks to steer clear of payday partnerships. However, no state has banned payday lending outright.
In Georgia, payday lenders oppose the plan to be licensed by the industrial loan commissioner but said they would not object to the creation of a separate agency to regulate them. Also, to address accusations that payday lenders charge exorbitant fees and encourage borrowers to roll over debt, the trade group has proposed a compromise that would set a maximum loan amount and fees, prohibit the garnishing of military wages, and allow customers to rescind a transaction within the first 24 hours.
Joe Brannen, the chief executive officer of the Georgia Bankers Association, said the Georgia General Assembly decided that enforcing the strict guidelines that already exist would be more effective than creating a new regulatory framework specifically for payday lenders.
At first the Georgia Bankers Association was wary of the bill, Mr. Brannen said, because bankers were afraid it would apply to them, much as a predatory lending law passed in 2002 did at first. Specifically, he said he was worried about overdraft protection programs, which are not considered loans, though consumer groups and payday lenders say they should be.
“Payday lenders keep trying to make a parallel between payday loans and overdraft privilege, so we were concerned that they may regulate overdraft programs,” Mr. Brannen said.
However, last weekend the House unanimously passed an amendment that would exempt banks that make small loans in their Georgia branches.
Mr. Schlien said it is unfair to classify payday lenders as industrial loan companies and make them subject to usury laws when the money they charge for a cash advance is not an interest rate, but a service charge. He also said overdraft protection programs typically cost more than payday loans.
