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State's Crackdown on Payday Loans Headed to Court
Judge Could Impose Temporary Ban on Enforcement

POSTED: 6:12 am EDT April 26, 2004
Source: http://www.wsbtv.com/news/3195108/detail.html

ATLANTA -- The legal battle over payday loans in Georgia moves to a federal court in Atlanta on Tuesday.

U.S. District Judge Marvin Shoob will address four lawsuits that claim the state's latest effort to stop payday lending is unconstitutional.

Shoob will consider whether to temporarily enjoin enforcement of Georgia's new payday lending law, which takes effect Saturday.

Payday lending has been illegal in Georgia for decades. But during this year's session, the Legislature passed what is believed to be the nation's toughest law prohibiting payday lending. Senate Bill 157, which Gov. Sonny Perdue signed two days after the April 7 close of the Legislature, makes the otherwise unenforced misdemeanor a felony that can bring time behind bars.

Among other things, the law also prevents banks from hiding their partnerships with banks based in states such as North Dakota and Delaware that have no interest rate caps.

The crackdown was pushed in part by top military base commanders in Georgia, who complained that payday lenders especially targeted young soldiers and sailors -- many of them economically unsophisticated -- and set up shop near military bases.

But the companies that have sued -- Advance America, Credit Corporation of Georgia, Express Check Advance and Cash America -- argue they cannot be restricted by Georgia's interest cap because they are doing the business of out-of-state banks governed by the Federal Deposit Insurance Act. The lenders claim they are acting as an agent for the banks and are immune from state usury laws.

Similar lawsuits have been filed in other states, but those cases are in the state courts. Because the Georgia lawsuits are in federal court, the outcome could expand beyond the state's borders.

"There's been a lot of discussion about whether state banks, because they are federally insured, have the right to export their interest rates," said Jean Ann Fox of the Consumer Federation of America, one of the groups that has filed arguments in the lawsuits. "You could get the definitive decision in this case as to whether states can protect themselves from loans made by local companies partnered with out-of-state banks."

During the legislative session, advocates for the working poor and the elderly appeared before legislative committees with stories of how a loan of just a few hundred dollars to cover an unexpected car repair or medical expense quickly became a debt of thousands, and, sometimes, tens of thousands, of dollars.

But Stephen Benjamin of the Consumer Finance Services Association of America, which represents some of the larger payday lenders, says the state's new law is unconstitutional. It will deprive the working poor, including those in the lower ranks of the military, of a needed service, he said.

"Our position is ... a majority of state legislatures in this country have spoken on this product and have decided consumers in their states should have access to this product," Benjamin said.

The industry claims the new law will put 2,000 people out of work and that payday loans are "a legitimate product that meets a real need."
Copyright 2004 by The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.