Payday lenders hope to return in Georgia
March 18, 2007 - Atlanta, Georgia
When the Georgia General Assembly opened for business in January, representatives of the payday lending industry walked in the Capitol's door, eager for another battle.
For the industry that extends a few hundred bucks until a worker's next payday, the return to Georgia was a bold move. Three years earlier, lawmakers handed the high-interest lenders one of their worst defeats ever by passing a bill that shut down every payday lending outfit in the state.
The industry suffered millions in losses. Advance America alone, the nation's largest payday lending chain, shuttered 89 Georgia stores after passage of the 2004 law. Those outlets produced net revenues of $19.9 million in 2003, according to the company's public filings.
Battered by the Georgia law and damaging regulatory decisions elsewhere, the payday lending industry has given itself a makeover to present a more consumer-friendly face. Last month, it kicked off a $10 million "public education" campaign.
"There is a huge need for this service," said Allan Jones, founder and chairman of Check Into Cash Inc., one of the nation's largest payday lending chains. "They can criticize it all they want to, but that doesn't change the need."
The industry says thousands of Georgians now cross state lines to take out payday loans.
Whether the industry has shed its predatory image will be tested this week at the General Assembly, when the House is expected to take up a bill to legalize payday lending.
The bill has gained traction in recent weeks. Jabo Covert, a Check Into Cash executive who has been heavily working the Capitol halls, thinks it is positioned to pass.
"A huge majority of legislators feel like they made a mistake [in 2004]," Covert said.
But consumer advocates are scoffing at the notion that people need payday lenders. "It's a business model that entraps people," said Sue Berkowitz of the South Carolina Appleseed Legal Justice Center.
The industry is thriving in South Carolina, where consumers took out 4.3 million payday loans between September 2005 and August 2006. The state now has more payday lending outlets than McDonald's franchises. Berkowitz said consumers are getting trapped in loans they can't pay off, and the South Carolina Legislature is considering a bill that would shut down the industry. Berkowitz has some stern advice for Georgia lawmakers: "Don't open the door."
Cheaper than overdrafts
Allan Jones had never heard of payday lending when he first saw a customer take out one of the cash advances. It was 1993 and Jones was focused on his multistate collection agency business based in his hometown of Cleveland, Tenn.
He was hanging out at a man's check-cashing business, trying to recruit the owner to join his company. Jones dropped his recruiting pitch when customers arrived with checks in hand. It didn't take him long to get curious.
The man told Jones he wasn't really "cashing" checks. He was advancing money on post-dated checks, in exchange for a 20 percent fee.
Jones remembers his reaction: "Twenty percent--that seems kind of high!" But the man quickly convinced Jones that the transaction made sense for customers. "He said, 'Allan, it's a lot cheaper than overdrafts.' "
Jones started thinking. He knew from his collection agency that many consumers quickly covered bounced checks. He learned by serving on a bank board that overdraft fees were a huge source of revenue. He also knew that employees frequently asked him for loans until their next payday. "I said, 'Wow! What a business! What a service!' "
Six weeks later, Jones opened his first Check Into Cash outlet in Cleveland. For three days, Jones said, the store didn't do a single transaction. Then, on a Friday, a local Army recruiter came in. He said his paycheck hadn't arrived, and he was desperate to buy his son a bike for his birthday, which was the next day, Jones said.
The recruiter left with $100, leaving behind a postdated check for $120 to cover the loan amount, plus the $20 fee.
The door kept opening.
Today, Check Into Cash has 1,250 outlets in 31 states. The payday lending industry, which had explosive growth in the 1990s, is a mix of corporate chains and mom-and-pop operations.
Advance America, a public company based in South Carolina, is the industry kingpin with 2,600 outlets nationwide. Ohio-based CNG Financial operates 1,400 Check n' Go stores.
CompuCredit is the only significant Atlanta-based player. The company got into payday lending in 2004 through a series of acquisitions. It now offers payday loans at 475 offices in 17 states.
The industry has been champing at the bit to return to Georgia.
Check Into Cash closed 24 Georgia stores after the 2004 law. The stores had just reached the break-even point, Jones said. "It was like a whole lot of work for naught," Jones said. "We got to break even and closed down."
Legal in 37 states
Payday lending is legal and regulated in 37 states. In Georgia and 12 other states, it is either illegal or not feasible, given laws on the books. Georgia law prohibited payday lending for more than 100 years, but the state was not successful in shutting the industry down until the 2004 legislation made payday lending a felony, allowed for racketeering charges and permitted potentially costly class-action lawsuits.
The bill pending in Georgia would authorize payday lenders 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 percent. Georgia law limits interest rates to 60 percent for most consumer loans.
The industry says the pending bill is filled with consumer protections: the option of a payment plan; a ban on renewing or "rolling over" the loans; and a prohibition against making the loans to members of the military.
Rep. Earl Ehrhart (R-Powder Springs), one of the sponsors of House Bill 163, said there were abusive practices among some payday lenders before the 2004 law. But Ehrhart argues the General Assembly went too far in outlawing payday lending entirely, something he believes happened at the behest of the state's influential finance companies.
Ehrhart, who works in the construction industry, said he's pushing for the bill because he believes current law disrupts the free market. Ehrhart said the pending bill would offer consumers the service yet prevent the abuse.
"This is a real simple thing," Ehrhart said. "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?"
Consumer advocates have not been won over.
"I'm appalled that Georgia is considering opening it up," said Jean Ann Fox of the Consumer Federation of America.
Consumer advocates say there is a fundamental flaw in the payday lending concept. If a worker living paycheck to paycheck is desperate for $200 for an unexpected bill, that worker is unlikely to be able to make good on that loan and handle all his regular bills in such a short time -- usually a week or two.
Legislation in Florida prohibits payday loan customers from having more than one loan at a time. A statewide database keeps track of existing loans.
Even with that restriction, Florida customers averaged about eight payday loans during a one-year period from September 2005 to August 2006, with a typical loan of about $380.
Florida law allows a fee of $10 per $100 extended, plus a $5 fee on top, less than what the Georgia bill would allow for most loans. For example, a payday lender could charge $35 for a $300 advance in Florida, compared with $45 under the Georgia plan.
"This is not a one-time emergency deal," said Fox of the Consumer Federation. "That might be what your first loan is, but once you get started it's very hard to stop."
James Josey was 19 and making minimum wage as a convenience store clerk in his South Georgia hometown when his car broke down in 2003. He didn't want to ask his parents for a loan, so he went to a payday lender and got $200.
But when the loan came due, Josey couldn't cover it. He was only bringing home about $170 a week.
Josey did what consumer advocates say often happens: He went to another lender to pay off the first loan. Eventually he owed more than $400, and a post-dated check he wrote to one lender had bounced.
Josey said he worried constantly because he couldn't see a way out. He eventually told his father about the debt, and his dad paid it.
"This isn't something that needs to be legal at all," said Josey, who is now 23 and working at a manufacturing plant.
Service or setup?
Georgia lawmakers will have to decide whether they view a regulated version of payday lending as a service or a setup. The industry is eager to prevail; it spent about $70,000 on campaign contributions in Georgia last year and has hired top-drawer lobbyists to get its message out.
Many in the industry are worried about whether payday lending will survive. North Carolina lawmakers eventually drove payday lenders out of their state by failing in 2001 to renew a law that authorized the short-term loans. Federal banking officials ruled in 2005 that payday lenders could no longer ignore state interest caps by tying themselves to out-of-state banks. And late last year, Congress passed a bill capping loans made to military personnel at 36 percent, a measure aimed at the payday industry and other high-interest lenders.
Allan Jones said those working against payday lending just haven't closely studied the issue. He goes back to the message he heard when he first witnessed a payday loan: It's cheaper than the alternatives.
"We are trying our hardest to be the best corporate citizen we can be," Jones said, "and provide a great service that is much needed."
Summary: Bringing Back Payday Loans
Proposal: House Bill 163
+ How it would work: Borrower writes postdated check for loan amount plus fee. Loan due at customer's next payday.
+ Cost: $15 fee for every $100 extended. For $300 borrowed for 14 days, the fee is $45. That computes to an annual percentage rate of 391 percent.
+ Limits: Loans cannot exceed $750 or 25 percent of customer's monthly gross income (whichever is less). Customer must wait five business days after paying off a loan to open a new one with 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.
Source: Staff research
The Atlanta Journal-Constitution, Carrie Teegardin, Staff Writer
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