By Jesse Herman, contributing editor
Three years ago Georgia lawmakers passed a bill that ended every payday loan lending outfit in the state. Now, representatives from the cash advance industry our marching onto the Capitol to meet with the Georgia General Assembly to bring their businesses back to the peach state.
The losses endured by the payday lending industry when they were eradicated from Georgia were severe. Millions in losses were felt throughout. The largest payday lender chain shut down 89 Georgia cash advance stores, abruptly ending revenues that had produced $19.9 million dollars in 2003.
Now, the payday lending industry has given itself a facelift and is kicking off a $10 million “public education” campaign.
Consequences
The criticism of the payday loans deals with ethical and economic principles. The argument is that payday loans put more people at financial risk than it actually helps.
Sue Berkowitz of the South Carolina Appleseed Legal Justice Center ridicules any notion that Payday Lending is a necessity. By trapping people into loans they can’t afford, she deems the industry as harmful; a system that traps people into loans that can not be afforded. "It's a business model that entraps people," she said.
The South Carolina payday loan industry is booming at the moment, as there are now more payday lending outlets in the state than McDonalds franchises. Now, Berkowitz says South Carolina legislature is considering a bill that would shut down the industry.
Needs
Just because some borrowers become trapped into debt does not mean some people don’t need payday cash advance loans and can’t manage their debt effectively. That, is the overall sentiment of the payday loan industry that argues their fees are less than and overdraft fees at a bank.
Payday lending is legal in 37 states. The bill pending, to make Georgia the 38th state, outlines regulations for the plan.
- Payday lenders are authorized to charge a $15 fee for every $100 advanced.
- For a typical $300 loan extended for two weeks, the $45 finance charge would compute to an annual percentage rate of 391%.
- Georgia law limits interest rates to 60% for most consumer loans.
The cash advance lending industry claims that the plan is pumped full of consumer protections such as:
- The option of a payment plan.
- A ban on renewing or rolling over loans.
- Prohibition against making the loans to members of the military.
“This is a real simple thing,” says Rep. Earl Ehrhart (R-Powder Springs), a supporter of the sponsors of House Bill 163. There are certain individuals that need short-term credit that don’t have the capacity to go to a bank. They are the single parent that needs 200 bucks to fix their car. Where are they going to go?”
On flip side, someone living paycheck to paycheck probably won’t be able to afford to pay back a $200 loan. The odds of them being able to pay their bills within a couple of weeks may not be feasible.
Outlawing cash advance loans can be seen as inhibiting a free commercial market. Somebody who borrows and pays back debts on time would view it as a convenient service. Those who cannot pay back loans on time would view it as a scam.
Personal outlooks may vary depending on what side of the fence you sit on. It is the lawmakers that will decide if you are right.
Summary of House Bill 163:
- How it works: Borrower writes postdated check for loan amount + fee, which is due at customer’s next payday.
- Cost: $15 for every $100 extended. For $300 borrowed for 14 days, the fee is $45. That computes to an annual percentage rate of 391%.
- Limits: Cannot exceed $750 or 25% of customer’s monthly gross income. Customer must wait five business days after paying off a loan to open a new one with the same lender. Lender must offer payment plan if borrower can’t cover loan at payday.
- Status: Expected to go before full House within a week; if approved, it would go to the Senate.
