B]Fierce debate over payday loans
By CARRIE TEEGARDIN
The Atlanta Journal-Constitution
Published on: 02/28/07[/b]
The Georgia General Assembly tried for decades to push payday lenders out of business. But the purveyors of short-term, high-interest loans always found a way to survive.
That changed three years ago, when commanders at Georgia's military bases launched an attack on payday lending and the General Assembly responded by shuttering the multimillion-dollar industry, which advances cash until a worker's next paycheck arrives.
Today, the General Assembly is in the midst of a fierce debate over legislation that would bring payday lending back.
The state House is expected to take up a bill in the next week that would legalize the high-interest loans. House Bill 163, which has been gaining momentum in recent weeks, has been approved by the House Banks and Banking Committee.
Backers say there's a market for the loans, but the industry is strongly opposed by consumer advocates. Atlanta's Clark Howard, the consumer guru who hosts a syndicated radio talk show, said he took two vacation days to testify against the bill at the Capitol.
"I'm just heartsick over this," Howard said in an interview. "We in Georgia have been doing the right thing and now we're about to do the wrong thing."
The plan to bring back payday lending prompted emotional debates in committee hearings. It pitted two of the state's top Republicans against one another. It also created waves among members of the state's Black Caucus when the group's chairman signed on in support of the bill.
The bill's sponsor, Rep. Steve Tumlin (R-Marietta), seemed battle-weary this week. Tumlin has said that he introduced the bill at the request of the payday lending industry and believes the issue deserves consideration.
"Sometimes you take a job and you just have to finish it," Tumlin said. "I have had bills that just felt good from day one to the day it's complete. This one has been more of a job than a joy."
Sky-high interest rates
Payday lending is legal and regulated in 37 states. In Georgia and 12 other states it's either illegal or not feasible under the law, according to the Community Financial Services Association of America.
Tumlin's bill would allow payday lenders to charge a fee of $15 for every $100 advanced. Customers would write a post-dated check for the amount of the loan plus fees, in exchange for cash. The loan would be due whenever their next paycheck arrives.
Georgia law prohibits annual interest rates above 60 percent for most loans. But the annual percentage rates for payday loans are in the triple digits. A fee of $112.50 on a $750 advance repaid after four weeks computes to an annual percentage rate of 195 percent. A weekly wage earner who pays a $45 fee for a $300 advance for five days would face an annual percentage rate of 1,095 percent.
Proponents of the bill say those figures are misleading since the loan has such a short term; it would be illegal for one to last a year. "Therefore the APR is irrelevant," said Jabo Covert, an executive with a Tennessee payday lender who has represented the industry at the Georgia Capitol.
In fact, supporters note that under the bill the loans could not be renewed or "rolled over." Borrowers who could not pay on time would be offered a payment plan at no additional cost. And borrowers would be required to wait five days after paying off one loan before taking out another from the same lender.
Before the industry was shut down in 2004, payday lenders routinely renewed loans, creating endless cycles of debt for borrowers.
Loans would be limited to $750 or 25 percent of a customer's monthly gross income, whichever is less. Lenders would have to be bonded and licensed by the state Department of Banking and Finance. They would be prohibited from lending to members of the military. In 2004, soldiers testified that they had been financially ruined by taking out payday loans, prompting their commanders to oppose the industry.
Covert said thousands of Georgians are crossing state lines to take out payday loans. His Tennessee company has lost millions of dollars since the Georgia law was passed and it wants to return to the state.
"People are demanding the product," Covert testified at the Capitol last week.
Covert said Tumlin's bill contains all of the strong consumer protection measures that can be found in laws across the country.
The payday lending industry acknowledges it has pushed the bill through its lobbyists and campaign contributions. Industry officials say they donated $70,000 to lawmakers and political parties last year, far less than consumer groups have alleged.
Rep. Al Williams (D-Midway), chairman of the Georgia Legislative Black Caucus, said he signed on as a sponsor of the bill because the loans sometimes make sense for people who are facing a crisis — their electricity will be turned off or their car has broken down — and they just need a little money to get through.
"Is it a desired way to borrow money?" he asked. "Of course it isn't." But he said with the right consumer protections, which he said he believes are now in the bill, the option can be a good one for some Georgians.
"There is a market for it," he said.
However, the majority of the Black Caucus opposes the bill. Consumer advocates have argued that the loans created more problems than they solved for poor people, some of them minorities, who resorted to them in the past.
Joe Mulholland, a South Georgia district attorney who prosecuted lenders that violated the 2004 payday lending law, said he understands the argument that people strapped for cash need an alternative. But after closely investigating payday lenders, he said, the General Assembly should not invite the businesses back.
"Credit cards are bad and small loans are bad, but these things are horrible," Mulholland said. "They really are modern-day loan sharks."
Mulholland, who testified against the bill last week, said it would be "nearly impossible" to prosecute violators under Tumlin's bill. And he said legislators need to understand that the industry is difficult to control.
"These companies are not good, upstanding businesses," he said. "They're not going to follow the law."
The General Assembly first tried to curb payday lending in 1904. But the law it passed, and a variety of others approved over the years, never completely eliminated the high-cost loans. By the late 1990s, payday lenders operated openly across Georgia. It wasn't until lawmakers enacted tough criminal penalties in 2004 that the industry closed down.
Republican split
The pending bill to legalize payday lending has created a split between two prominent Georgia Republicans. Insurance Commissioner John W. Oxendine opposes the bill. Rep. Earl Ehrhart (R-Powder Springs), chairman of the agenda-setting House Rules Committee, is an enthusiastic advocate.
After Oxendine publicly opposed the plan to legalize payday lending, the bill was amended to move oversight of the industry from Oxendine's office to the Department of Banking and Finance. Ehrhart also introduced a bill that would strip Oxendine of his authority to license and oversee finance companies that lend $3,000 or less under the Georgia Industrial Loan Act.
Ehrhart did not return calls seeking comment for this article.
Oxendine said the bill was amended because "I've made it clear that I'm going to be a protector of the consumers."
Oxendine said he will continue to oppose the bill. "We set such a great standard and took a stand," he said. "It would be very sad if that image of honor we have fought hard to earn were to be tarnished."
BRINGING BACK PAYDAY LOANS
• Proposal: House Bill 163
• How it works: Borrower writes post-dated check for loan amount plus fee. Loan due at customer's next payday.
• Cost: There's a $15 fee for every $100 extended. For $300 borrowed for 14 days, the fee is $45. That computes to an annual percentage rate of 391 percent.
• Limits: Loans cannot exceed $750 or 25 percent of monthly gross income (whichever is less). Customer must wait five business days after paying off a loan to open a new one with same lender. Lender must offer payment plan if borrower can't cover loan at payday.
• Status: Expected to go before the full House within a week; if approved, it would go to the Senate.
Fierce debate over payday loans | ajc.com
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This would be a blow to many of the working poor in this state. It's bad enough that we have all of these crooked check cashing outlets and pawn shops exploiting the black community, but if this bill is passed, these payday loan companies will set-up shop in poor black neighboorhoods across the State of Georgia. Believe it.
No loan company should be allowed to charge people, especially poor people, 190 percent interest on short-term loans. To me, that is downright criminal.
let me say.... huge, mistake, I took out $500. that I didnt have to begin with, only a checking account, and had to pay $75 on top of that!(I think It was bi-weekly) well, it felt great getting the money advanced, of course, because I needed it, but I just kept sinking deeper in the hole, when I would pay back the $575.00, I would have them loan me the money again, before i left.
I eventually smartened up, and just bit the bullet, closed my checking account, and made installments on what I owed. needless to say, they didnt like that, but I just couldnt get from underneath them...I guess people can manage better, and continue using these loan places, but I couldnt, nor will I anymore.....
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