Georgia Cracks Down On Payday Lenders
By Jennifer Spinner
Summer 2004
Georgia legislators have stood up for the state's military personnel and passed a bill that halts the operation of payday loan companies statewide.
The bill will become effective May 1 if signed by Gov. Sonny Perdue. The legislation passed the Senate 49-2 and the House with a vote of 132-28.
Senate Bill 157 lays out tough criminal penalties for payday lenders who violate Georgia's criminal usury cap of 60 percent annual interest. It replaces previously unenforced misdemeanor penalties with felonies and possible racketeering convictions that could bring 20 years in prison and fines of $25,000 per transaction. The bill also includes provisions for consumers to bring class-action lawsuits for substantial monetary awards.
Capt. John Cohoon, Naval Submarine Base Kings Bay commanding officer, said he is excited about the bill because it offers real protection for military members and their families.
"This bill really has teeth," he said. "It is the toughest in the nation and gives true protection for our Sailors and Marines. It also offers real penalties for the companies that prey on them. I have invested a lot of emotional capital in this issue, and I am thrilled that it passed."
The bill prohibits activities commonly referred to as payday lending, deferred presentment services or advance cash services and currently unlicensed and unregulated activities from operating in the state.
With only a pay stub or post-dated check as collateral, these lenders offer quick-fix, two-week loans of $100 to $500 to get the borrower out of a short-term hole. These quick-fix loans typically carry a $15 charge per $100 borrowed, which equates to a yearly interest rate of 360 percent. If the loan is extended beyond two weeks, or rolled over, the interest piles up and the consumer who initially borrowed hundreds is left owing thousands.
That is exactly what happened to SK2(SS) Jason Withrow, a Kings Bay sailor. Withrow was injured in a car accident in July 2003 and forced to quit his second job. He called a phone number in the Kings Bay Periscope base newspaper and was referred to Georgia Catalog Sales, a local payday lender located right outside the base gates.
Withrow took out a loan for $300 with a payback of $390. After several rollovers and two loans from another payday lender, Advance America, to cover his initial debt, what began as a $300 loan to hold his family over until the next payday had ballooned into a debt of more than $9,000 – $7,000 of which was interest alone.
Withrow eventually went to his command and arranged for a no-interest loan from Navy-Marine Corps Relief Society.
He, along with Cohoon and representatives from Ft. Stewart and consumer action groups, traveled to Atlanta earlier this year to testify in front of a House committee working on the current legislation and lobby for the bill.
"If my testimony helped convince that committee to pass this bill, I am grateful," he said. "This bill helps my shipmates and benefits the community as well."
"These loans target people who already lack money management skills," said Felipe Gonzales, financial counselor at the NSB Kings Bay Fleet and Family Support Center. "This is a very expensive method of attaining credit, and it should be used as a last resort."
Gonzales said there are many alternatives to these costly loans.
"Consumers should really consider their options," he said. "When you need credit, shop carefully and compare offers. Look for the credit offer with the lowest APR or, even better, consider a small loan from your credit union or small loan company, or a loan from family or friends. Always know the terms before deciding on a loan.
"Ask your creditors for more time to pay your bills. Find out what they will charge for that service, whether it's a late charge or additional finance charge or even a higher interest rate, and compare that to what you would pay for a payday loan."
Of course, prevention is the best plan for avoiding credit emergencies. Setting a realistic budget and regularly setting aside money for savings, even in small amounts, can help keep consumers out of debt when emergencies and unexpected expenses pop up.
"This can give you a valuable buffer against financial emergencies," said Gonzales. "The last thing you need when an emergency situation comes up is to have a mountain of debt to take care of after everything is over."
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Journalist First Class Jennifer Spinner is a member of the United States Navy serving on active duty at Kings Bay Naval Submarine Base, Georgia. She is the lead staff writer for the base's weekly newspaper, Kings Bay Periscope.