A “Heads-Up” On Payday Loans, (Or, You Can Never Be Too Careful Out There)

Scammers are ever-resourceful in finding a way to debit a bank account. The Federal Trade Commission (FTC) unearthed a $9.5 million scam involving online applications for payday loans. When a consumer applied for a loan on the scammer’s website, they were asked to provide personal and financial information including a bank account number. Near the close of the loan application, they were offered additional programs for travel, food, discounts on merchandise and long distance calls, programs totally unrelated to the loan application. When a consumer clicked to “submit” the loan application, they became enrolled in the unrelated programs and their bank account was initially debited $59.90 per month and later $99.90 per year. Unsatisfied with merely receiving a predatory interest rate on the “loan”, these scammers added still another wrinkle to separate consumers from money in their bank account.

In Georgia, payday loans have been considered to be illegal. The Georgia Industrial Loan Act of 1955 required that firms making these short-term loans of less than $3000.00 be licensed and registered in Georgia and imposed strict limitations (“caps”) on the allowable interest rate. Also, in 2004, the Payday Lending Act was enacted. Georgia was the first state to react to the dangers of payday loans and try to protect residents from being caught up in a vicious cycle of high finance charges and perpetual debt. Even though the loans are considered illegal, due to the huge profit margins associated with these loans, it appears that online lenders registered in states where payday loans are legal continue to offer and to issue payday loans to residents of Georgia. Also, banks chartered under federal law or chartered under another state’s law which are insured by and under the supervision of the Federal Deposit Insurance Corp and credit card banks are exempt from the Payday Lending Act of 2004. Due to the lucrative profits associated with these loans, it is not surprising to find that a bank chartered under another state’s law (Bank West, Inc.) has allowed Advance America, a payday lender with offices in Georgia, to act “as an agent of the bank” in order to attempt to evade Georgia “caps” on interest rates and issue payday loans in Georgia. This “artificial agency relationship” has been characterized by officials in Georgia as nothing less than the “renting out” of an out-of-state bank’s banking powers to allow a payday lender with offices in Georgia to attempt to evade the interest rate “caps” under Georgia law. Indeed, in 2004, a Fulton County Superior Court Judge found that Advance America had shown no reason why it would involve an out-of-state bank in the payday loans made in Georgia when it does not involve a bank in states where payday loans are legal. It appears that Check Into Cash and USA Payday have also involved out-of-state banks to make payday loans in Georgia. Under the Payday Lending Act of 2004, even if a bank is involved, the loan would still be considered illegal in Georgia if the “so-called agent” of the bank (the payday lender) is receiving the predominant share of the revenue generated by the loan and not the bank.

As this “rent-a-bank” issue has continued to play out and be exposed to the light of day, the good news is that no federally-chartered bank or thrift appears willing to risk its reputation in the financial community by “renting-out” its banking powers to a payday lender. If you wish to lodge a complaint against a payday lender, you may contact the Georgia Insurance Commissioner by telephone at (404) 656-2078 and by fax at (404) 657-8542. Also, a consumer caught up in a payday loan may seek the protection that comes with the filing of a bankruptcy case. In a Chapter 7 case, it appears the payday loan(s) could be scheduled as “unsecured (disputed)” debt and discharged (eliminated) when the case was completed. In a Chapter 13 case, it appears the loan(s) also could be scheduled as “unsecured (disputed)” debt. If the lender files a Proof of Claim and tries to be paid in the I, an Objection could be filed on the ground that the lender’s claim for payment is unenforceable. In the event no Proof of Claim is filed by the lender, the debt also would be discharged when the case was completed. One of our attorneys can walk you through your options.

C. Wingate Mims, Attorney at Law
Jeff Field and Associates
342 North Clarendon Avenue
Scottdale, Georgia 30079
404.499-2700 Office
404-499-2728 Fax
www.fieldlawoffice.com