A "payday loan" is a loan of short duration, usually two weeks, with fees of 15% to 30% of the amount advanced. The payday loan industry generates billions of dollars a year. States are cracking down on payday lenders, and the industry is regulated in the states where it is still legal. Payday loans are generally illegal in Georgia, unless made by a Georgia licensed industrial loan lender or an out-of-state FDIC insured bank as long as its agent in Georgia does not receive most of the profits. Loans made by a Georgia industrial loan licensee are subject to the terms and limitations of the Georgia Industrial Loan Act.
Payday lenders require you to furnish a copy of your driver's license, and information about your employment and bank accounts. The loan is usually for a couple of weeks (the time until your next paycheck). The lenders do not perform a credit check, and you write them a post-dated check for the amount you want to borrow plus a fee. The fee is usually a "borrowing" fee and an account set-up fee. The lenders will then deposit your check after your payday if you have not already paid off the loan. If your bank account cannot cover the amount of the loan, you will then owe the original loan plus added interest. You may also incur overdraft fees from your bank. If you know you cannot pay off the loan in time, you can pay the borrowing fees (or finance charge) in order to renew the loan. The annual percentage rate (APR) for a payday loan often starts over 400 percent! This practice creates a cycle of consumer refinancing and continuous debt.
The federal Truth in Lending Act requires disclosure of the cost of credit. You must receive, in writing, the finance charge (a dollar amount) and the APR, which is the cost of credit on a yearly basis. Payday lenders are subject to this regulation.
The Georgia Industrial Loan Act of 1955 essentially made payday lending illegal by requiring state licensing and registration and by imposing strict usury limits on small loans. In 2004, the Georgia General Assembly increased the fines and criminal penalties for people making small loans at illegal rates of interest. The law went into effect in May 2004, and has survived challenges in federal court. Referred to as the Payday Lending Act of 2004, this law authorizes misdemeanor charges against violators, as well as fines of up to $5,000 per violation and a possible jail sentence of 1 year.
Usury laws limit the interest rate amount a lender can charge. In Georgia, a licensed lender cannot charge more than 10% interest on a loan of $3,000 or less. Most states have a usury limit; if you were to borrow money from an out-of-state lending institution, that state’s cap would apply. Bear in mind that these rates may differ from Georgia’s rates.
The Georgia Department of Law's Consumer Protection Unit does not handle complaints relating to payday lenders.
- If you have questions about an industrial loan licensee, you should contact the Industrial Loan Division of the Office of the Commissioner of Insurance at:
Office of the Commissioner of Insurance, Industrial Loan Division
2 M.L. King, Jr., Drive, 7th Floor, West Tower
Atlanta, Georgia 30334
- Georgia victims of a payday lender should pursue criminal action through their local district attorney or solicitor. Victims should also report the incident to the Office of the Commissioner of Insurance, Industrial Loan Division (contact information above) and the Georgia Attorney General's Office at:
Office of the Attorney General
40 Capitol Square, SW
Atlanta, Georgia 30334
- Any victim who believes that the lender has violated the Truth in Lending Act should file a complaint with the Federal Trade Commission (FTC). The FTC cannot solve individual problems but will be able to act if it discovers a pattern of violations.
There are ways to avoid needing a payday loan:
- Make a realistic budget and figure your monthly and daily expenditures to eliminate unnecessary purchases.
- Contact your local consumer credit counseling service, credit union, or nonprofit credit counseling provider if you need help planning a budget.
- Plan on using only one credit card for purchases so you can limit your debt and track your expenses.
- Look into the availability of overdraft protection on your checking account.
- Compare offers when shopping for credit and look for credit with a low APR and low finance charges.
- Ask creditors for more time to pay your bills, and inquire whether they will charge you more fees for that service.
Loans made by pawnbrokers are regulated at the state level in Georgia, but local governments can impose stricter limitations. Pawn shops are licensed by county and municipal governments and monitored by the local police or sheriff's department. Complaints about pawn shops should be reported to the appropriate local law enforcement authority.