"Payday Lending" Defined; Legislative Findings; Prohibited Activity; No Impairment of Agencies With Concurrent Jurisdiction

1. Law
2. Georgia Code
3. Crimes and Offenses
4. Payday Lending
5. "Payday Lending" Defined; Legislative Findings; Prohibited Activity; No Impairment of Agencies With Concurrent Jurisdiction

1. Without limiting in any manner the scope of this chapter, "payday lending" as used in this chapter encompasses all transactions in which funds are advanced to be repaid at a later date, notwithstanding the fact that the transaction contains one or more other elements and a "payday lender" shall be one who engages in such transactions. This definition of "payday lending" expressly incorporates the exceptions and examples contained in subsections (a) and (b) of Code Section 16-17-2.
2. Despite the fact that the Attorney General of the State of Georgia has opined in Official Opinion 2002-3 entered on June 27, 2002, that payday lending is in violation of Georgia law and despite the fact that cease and desist orders against various payday lenders in the State of Georgia have been issued, the General Assembly has determined that payday lending continues in the State of Georgia and that there are not sufficient deterrents in the State of Georgia to cause this illegal activity to cease.
3. The General Assembly has determined that various payday lenders have created certain schemes and methods in order to attempt to disguise these transactions or to cause these transactions to appear to be "loans" made by a national or state bank chartered in another state in which this type of lending is unregulated, even though the majority of the revenues in this lending method are paid to the payday lender. The General Assembly has further determined that payday lending, despite the illegality of such activity, continues to grow in the State of Georgia and is having an adverse effect upon military personnel, the elderly, the economically disadvantaged, and other citizens of the State of Georgia. The General Assembly has further determined that substantial criminal and civil penalties over and above those currently existing under state law are necessary in order to prohibit this activity in the State of Georgia and to cause the cessation of this activity once and for all. The General Assembly further declares that these types of loans are currently illegal and are in violation of Code Section 7-4-2. The General Assembly declares that the use of agency or partnership agreements between in-state entities and out-of-state banks, whereby the in-state agent holds a predominant economic interest in the revenues generated by payday loans made to Georgia residents, is a scheme or contrivance by which the agent seeks to circumvent Chapter 3 of Title 7, the "Georgia Installment Loan Act," and the usury statutes of this state.
4. Payday lending involves relatively small loans and does not encompass loans that involve interstate commerce. Certain payday lenders have attempted to use forum selection clauses contained in payday loan documents in order to avoid the courts of the State of Georgia, and the General Assembly has determined that such practices are unconscionable and should be prohibited.
5. Without limiting in any manner the scope of this chapter, the General Assembly declares that it is the general intent of this chapter to reiterate that in the State of Georgia the practice of engaging in activities commonly referred to as payday lending, deferred presentment services, or advance cash services and other similar activities are currently illegal and to strengthen the penalties for those engaging in such activities.
6. This chapter in no way impairs or restricts the authority granted to the commissioner of banking and finance or any other regulatory authority with concurrent jurisdiction over the matters stated in this chapter.

(Code 1981, §16-17-1, enacted by Ga. L. 2004, p. 60, § 3; Ga. L. 2005, p. 60, § 16/HB 95; Ga. L. 2020, p. 156, § 5/SB 462.)

The 2020 amendment, effective June 30, 2020, in subsection (b), deleted "the Industrial Loan Commissioner has issued" preceding "cease" and inserted "have been issued"; substituted "Georgia Installment Loan Act" for "Georgia Industrial Loan Act" at the end of subsection (c); and deleted ", the Industrial Loan Commissioner," following "finance" in the middle of subsection (f).

Law reviews.

- For annual survey of law of business associations, see 56 Mercer L. Rev. 77 (2004).

JUDICIAL DECISIONS

Enforcement.

- Request by creditors for a preliminary injunction blocking the enforcement of O.C.G.A. § 16-17-1 et seq., which prohibited payday loans, was moot because the creditors were no longer offering those loans; thus, the creditors no longer had a legally cognizable interest in obtaining the injunction and there was no longer an actual adversarial context for a ruling. BankWest, Inc. v. Baker, 446 F.3d 1358 (11th Cir. 2006).

Constitutionality.

- Trial court did not err in rejecting both the defendants' equal protection and vagueness challenges to O.C.G.A. § 16-17-1 et seq., after the defendants were charged with violating O.C.G.A. § 16-17-2, as both the defendants, as in-state lenders, were not similarly situated with out-of-state banks designated in O.C.G.A. § 16-17-2(a)(3), and hence were subject to state regulation restricting high interest rates on loans, whereas the out-of-state banks were not; the Georgia legislature had a rational basis for creating a class based on those in-state payday lenders who were subject to state regulation, and moreover the prohibition against payday loans in whatever form transacted was sufficiently definite to satisfy due process standards. Glenn v. State, 282 Ga. 27, 644 S.E.2d 826 (2007).

Injunctive relief upheld.

- Trial court did not manifestly abuse the court's discretion in granting the state a modified injunction in a suit against payday lenders because the state presented sufficient evidence to demonstrate it was entitled to injunctive relief, namely, that it would prevail at trial since a substantial judgment was issued against a lender, the lenders failed to produce financial information during discovery, and serious concerns as to the lenders insolvency existed. W. Sky Fin., LLC v. State of Ga. ex rel. Olens, 300 Ga. 340, 793 S.E.2d 357 (2016).

Construction of period of limitation.

- Supreme Court of Georgia is not persuaded that the Georgia legislature intended the period of limitation for bringing an enforcement action pursuant to the Payday Lending Act, O.C.G.A. § 16-17-1 et seq., to be governed by the one-year limitation period for forfeiture actions pursuant to the usury laws; instead, the Court concludes the remedies set forth in the Payday Lending Act are governed by the 20-year statute of limitation set forth in O.C.G.A. § 9-3-1. W. Sky Fin., LLC v. State of Ga. ex rel. Olens, 300 Ga. 340, 793 S.E.2d 357 (2016).

Construction.

- Georgia Supreme Court concludes that the Payday Lending Act, O.C.G.A. § 16-17-1 et seq., including the statement that payday lending does not encompass loans that involve interstate commerce, is merely a legislative finding of fact to which the Court is not bound; to exempt loans that involve interstate commerce from the prohibitions of the Act would create such a contradiction and absurdity as to demonstrate that the Georgia legislature did not mean it to create such a limitation. W. Sky Fin., LLC v. State of Ga. ex rel. Olens, 300 Ga. 340, 793 S.E.2d 357 (2016).

District court correctly found that forum selection clauses in class borrowers' payday lending agreements were unenforceable as against Georgia public policy in the borrowers' suit alleging usury violations because the Payday Lending Act, O.C.G.A. § 16-17-1 et seq., articulated a clear public policy against enforcing such clauses as a remedy for those aggrieved by predatory lenders. Davis v. Oasis Legal Fin. Operating Co., LLC, 936 F.3d 1174 (11th Cir. 2019).

Legality of payday lending contracts was issue for arbitrator.

- Borrower's argument that the payday lending contracts that the borrower entered into were illegal and void ab initio under Georgia law, O.C.G.A. § 16-17-1, challenged the content of these contracts and not their existence and was an issue for an arbitrator, not the court, to decide. Jenkins v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868 (11th Cir. 2005), cert. denied, 546 U.S. 1214, 126 S. Ct. 1457, 164 L. Ed. 2d 132 (2006).

Sale/leaseback transactions deemed illegal payday loans.

- Sale/leaseback transactions engaged in by consumer cash advance businesses violated the anti-payday lending statute, O.C.G.A. § 16-17-1 et seq., and the Georgia Industrial Loan Act, O.C.G.A. § 7-3-1 et seq., since the state proved that the purported lease back of personal property to the consumer was not based on the actual appraised market value of the personal property but directly corresponded to the loan amount; the state proved that the businesses were requiring customers to be released from the loan agreement by paying the principal amount advanced to them plus a 25 to 27 percent fee, which amounted to an annual percentage rate of 650 to 702 percent. Clay v. Oxendine, 285 Ga. App. 50, 645 S.E.2d 553 (2007), cert. denied, No. S07C1247, 2007 Ga. LEXIS 556 (Ga. 2007).

Prospective operation.

- Request by creditors for a preliminary injunction blocking the enforcement of O.C.G.A. § 16-17-1 et seq., (the Act), which prohibited payday loans, did not address a case or controversy because the Act did not apply retroactively to loans made before the effective date of the Act; even if the Georgia Attorney General had not explicitly conceded this point, O.C.G.A. § 1-3-5 prohibited the retroactive application to impair the obligation of existing contracts. BankWest, Inc. v. Baker, 446 F.3d 1358 (11th Cir. 2006).

Lender's 49 percent economic interest.

- In a class action suit seeking to hold a lender liable for payday loans, the trial court did not err in concluding that genuine issues of material fact existed as to whether the lender was the true lender of the loans made after May 14, 2004, because evidence was presented sufficient to create a genuine issue of material fact regarding whether the lender actually received only a 49 percent economic interest for the lender's services and even if the lender did so, whether the lender nevertheless, by contrivance, device, or scheme, attempted to avoid the provisions of O.C.G.A. § 16-17-2(a). Ga. Cash Am. v. Greene, 318 Ga. App. 355, 734 S.E.2d 67 (2012).

Funding agreements were investment contracts, not loans.

- After the defendants entered into separate funding agreements with the plaintiffs, the defendant's motion to dismiss a putative class action for damages premised on violations of the Georgia Industrial Loan Act (GILA), O.C.G.A. § 7-3-1 et seq., was properly granted, but the defendant's motion with regard to the Payday Lending Act (PLA), O.C.G.A. § 16-17-1 et seq., was improperly denied as the funding agreements were not loans, but rather were investments in the plaintiffs' litigation, because the repayment requirement was completely contingent upon the recovery of proceeds from the plaintiffs' related legal claims; thus, instead of being loans that were regulated by the GILA and the PLA, the funding agreements were investment contracts to which the GILA and the PLA did not apply. Cherokee Funding LLC v. Ruth, 342 Ga. App. 404, 802 S.E.2d 865 (2017), aff'd, 304 Ga. 574, 820 S.E.2d 704 (2018).

RESEARCH REFERENCES

ALR.

- State regulation of payday loans, 29 A.L.R.6th 461.

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