August 20, 2019

Payday Loans Banned in Georgia? Not So Fast….

high interest short term loans allowed in GeorgiaIn 2004 the Georgia legislature passed legislation that was designed to outlaw “payday lending” – the practice of finance companies making high interest short term loans of a few hundred or a few thousand dollars.  According to the Georgia Department of Banking and Finance, a payday loan involves the practice of using a post-dated check or electronic checking account access to repay the loan.

Payday loans can have an effective interest rate of 300% and bad check and delinquency charges can quickly turn a $300 loan into a $1000 debt.

When payday loans were legal, most of the loan transactions were made by small, storefront lenders usually located in run down areas of town.

Lenders caught making payday loans (as defined by the statute) face possible felony racketeering charges and large fines.  Thus, if you search for “payday loans” in the Internet, most of the sites that come up will note that Georgia does not allow these types of loans anymore.

Interestingly, most states still do allow payday loans and I even found a report issued by the Federal Reserve Branch of New York which concludes that payday loans, while expensive, serve a need and should not be characterized as “predatory.”

Even more interesting, it now appears that large banks are entering the short term/high interest loan business by creating loan programs that do pretty much the same thing as payday loans but are slightly different.  According to the CaveatEmptor blog, big banks are opening payday loan divisions, and Georgia’s payday loan ban does not seem to apply.

Specifically, two banks – RegionsBank and Guaranty Bank offer short term/high interest loans that are repaid by automatic withdrawal from a checking account  you maintain at that institution.  The RegionsBank loan, called Ready Advance features a 21% interest rate calculated from the day you take out the loan, an origination fee equal to 10% of each cash advance, fees for copies of statements, and a contract provision that waives your right to sue.

Guaranty Bank charges $30 per advance and an “application fee” (i.e. finance charge) of 277% per year.  The most you can borrow from Guaranty on this program is $400.

Rather than cash advances on paychecks, these are advances on expected deposits -which, of course, are often paychecks.  Other studies have shown that often the proceeds of a short term loan are used to pay interest and fees on a prior short term loan.

As a practicing consumer bankruptcy lawyer, I have assumed for years that the payday loan business was no longer viable in Georgia, but it turns out that some of the debts  my clients show me from “legitimate” banks are basically the same type of loan with a nicer name.

If you find yourself considering a “short term loan,” may I suggest that it may be time to speak with a bankruptcy attorney before you find yourself spending money you don’t have and living with the stress of trying to juggle loans that are designed to keep you in a cycle of debt.

 

 

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

Comments

  1. Cleophas Tyson Jr says

    I have three pay day loans. thank for you infomation.

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