Georgia Upholds Payday Loan Ban

Georgia narrowly rejected a bid Tuesday to repeal their ban on payday loans.

The vote failed 82-77 in a Republican-led House. The bill would’ve replaced Georgia’s 3-year old ban on payday loans with a system letting lenders charge $15 for every $100 borrowed.

Georgia is the only state with a payday loan ban.

The payday loan industry is gearing up its lobbying efforts to legalize and legitimize their advantage-taking of impoverished Americans. It will take our elected representatives’ resolve and integrity, and our clamor, to resist these efforts. — BEN POPKEN

House defeats payday bill [AP] (Hat tip to raising4boys!)
(Illustration: Andrew Mason)

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  1. medalian1 says:

    I think they should be allowed. I wish I could open one.

  2. philbert says:

    If this will take our elected representatives’ resolve and integrity this ban is in a shit load of trouble.

    Politics is nothing more than show business for ugly people.

  3. alfonzotan says:

    Is this site now a responsibility-free zone? I think the payday loan vendors are slime, but nobody puts a gun to anybody’s head making them go there.

  4. Will Clarke says:

    Why shouldn’t they be able to offer payday loans? Sure they’re predatory, but it’s certainly no worse than the lottery, which is quite prevalent here in Georgia.

  5. Franklin Comes Alive! says:

    It will take our elected representatives’ resolve and integrity, and our clamor, to resist these efforts

    Trying… to stifle… giggling. Hee-hee.

  6. Sam Glover says:

    Bravo Georgia! However, I’m not sure banning payday loans entirely is a long-term solution. This sort of thing attacks only one manifestation of the problem.

    The real solution is for Congress to change the rules allowing any lender to charge usurious interest rates just by incorporating in South Dakota or New Jersey.

    Maybe it’s time for a national usury rate. I’m sure this will be controversial, but I think we can all agree that a 100% APR is a bit ridiculous. What about 20%, and states can lower it if they choose?

  7. Ben Popken says:

    @alfonzotan: Bam! I just shot you in the head. Oh I’m sorry, it was your personal responsibility to duck.

  8. alfonzotan says:

    @Ben Popken: Actually, it was my responsibility not to walk into your store, hand you a gun, and tell you to point it at my head.

  9. TheCFC says:

    I’m going to have to agree with alfonzotan. This is a pro-consumer web site and the best thing for consumers is a free market. Things get very expensive when you regulate them. If people want to spend $15 to get a $100 advance on their paycheck, it is their choice. Why does the government need to protect people from themselves? If you want to help out these payday lending customers, set up a microlending foundation that offers fee free payday advances, but please don’t pray for yet another law banning yet another legitimate business.

  10. alfonzotan says:

    To put it another way, what’s the difference between patronizing one of these places and going to BestBuy for an HDMI cable? They’re both stupid things to do, but nobody’s saying BestBuy ought to be shut down for selling overpriced cables.

  11. Red_Eye says:

    Regardless of the payday loan ban you cant drive 30 feet in a major metro area here without seeing a “Title Loan” shop where you can hawk your car title for a loan, its insane. Pawn hops are more abundant than they are in Reno. A quick run at switchboard.com shows 408 Title Loan places listed for Atlanta, GA. There are only 298 Payday Loan places listed for Sacramento CA.

  12. Ben Popken says:

    @alfonzotan: You must be from the school of “never give a sucker an even break.” Like Sam Glover cites, there are cases where poor, underinformed, and financially unsavvy people got lied to and manipulated by quick-buck brokers.

  13. Greganda says:

    @ Sam Glover: I think jumping to a legislative solution is premature, because it will be perceived by the people who use payday loans and who pay usurious interest rates as robbing them of economic options. Sure the options are shitty, but they are options nonetheless and when you are so on the edge financially that you’ll pay those rates, you really need the money.

    The essential first step is for people to become more educated about their economic choices and the financial products they consume. That way they will at least be aware that their options are shitty (as opposed to believing the surface hype about “convenience” and that credit is a right based on one’s “worthiness”). Outrage and motivation to influence policy will hopefully build from a demand for social and economic justice, not from liberal instincts to protect the poor (which are almost always experienced as condescending).

    To alfonzotan’s point, when legislative action comes from a place of informed choice, then it IS a result of personal and collective responsibility.

  14. Greganda says:

    And here’s a good history of our national efforts to regulate/deregulate interest rates:

    http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/

  15. alfonzotan says:

    @Ben Popken: Thanks, you’ve answered my original question: Apparently people aren’t responsible for their own actions, unless they’re in business. Then we should fry the bastards. Lenin, 1917.

  16. John Stracke says:

    @Will Clarke:

    but it’s certainly no worse than the lottery, which is quite prevalent here in Georgia.

    Maybe the state wants to maintain their monopoly on preying on the poor and the stupid.

  17. indianaguy says:

    @Ben Popken

    So it is the governments responsibility to protect us from being uninformed. I think not. Personal responsibility is the essence of consumerism. You have to be informed when conducting business. Hence the existence of this site.

  18. j.a.s.o.n says:

    Regarding the whole personal responsibility vs. predatory practices debate, don’t we all realize at some point in our lives, and hasn’t this site advocated it before: caveat emptor and read the fine print? Hell, it’s the name of Mr. Glover’s blog.

  19. mac-phisto says:

    @alfonzotan: they can put a pretty name on it, but these guys are nothing more than loan sharks. last time i checked, that was illegal…why should this be any different?

    the problem with sharking (& payday lending) is that they count on customers to be a continuous revenue stream. they have no interest in having your loan paid off – they would rather string you along as long as possible. often, people end up jumping from loan center to loan center just to stay a day ahead of a meeting with a large thug & a baseball bat. i have seen a few individuals literally end up paying thousands of dollars b/c they needed a one-time advance of $600-700.

  20. Sam Glover says:

    @j.a.s.o.n: Of course, the name of my blog is somewhat tongue-in-cheek, as the rule of caveat emptor is largely nonexistent due to legislative action. And don’t go thinking I am advocating a return to that rule.

    I don’t really see a problem with Congress defining the outer bounds of fairness. The market will work within the parameters set by law. There is no reason anyone needs to charge a 300% APR, even for risky lender. There are plenty of other, less usurious ways to encourage payment.

  21. Toof_75_75 says:

    @alfonzotan:

    I’m with you on this. I appreciate the idea of what Georgia is doing (“protecting” its citizens), but I’m of the opinion that government doesn’t need to follow me around all day and say, “Ok, you can do this…No, sorry, that’s bad for you!…” It’s like the smoking ban that they just passed in PA (similar to those that have been passed other places for a while now), how is it the government’s place to tell business owners “People can’t smoke in your establishment”? That situation should work itself out. If you don’t want to go somewhere they allow smoking, don’t go. If enough people don’t go, the business will lose money and will have to give in to the desires of its possible customers.

  22. TheCFC says:

    j.a.s.on. writes: “The market will work within the parameters set by law. There is no reason anyone needs to charge a 300% APR, even for risky lender. There are plenty of other, less usurious ways to encourage payment.” How can law makers legislate risk? It’s impossible. You can’t say the riskiest customer in the world isn’t worth a 300% interest rate! Some customers are so risky you would lose money charging 100,000% interest because they will never pay you back.

  23. Snarkysnake says:

    I live in Georgia and I would be in favor of letting these guys back in IF AND ONLY IF,our blatantly for sale congress had not nailed shut the escape hatch for the most desperate borrowers in 2005 by “reforming” the federal bankruptcy laws.While the companies that they borrow from can blithely go bankrupt and be excused from paying employees,vendors and creditors (Chapter 11),these people will have a court hound them unto the grave if they cannot pay.

  24. gorckat says:

    Some customers are so risky you would lose money charging 100,000% interest because they will never pay you back.

    In that case…well, yeah :P

  25. j.a.s.o.n says:

    @Toof_75_75: “how is it the government’s place to tell business owners “People can’t smoke in your establishment”?”

    This IS the government’s business.

    There are occupational safety and health issues. Low-quality occupational safety and health regulations affect the government because they bear some of the cost of disability payments, medical treatments and the loss of contribution to tax revenues and GDP from the lost productivity.

    There are public safety and health issues. You can think of it as just another regulation that the government commonly doles out concerning safety in the food service industry. Do you also think it’s not the government’s business to set regulations on the cleaniness of restaurants?

    cf. this study for some results on the effect that the ban has had on public health. And, what is more, there are studies in New York that show the smoking ban has had a positive effect on businesses: that is, business has increased as a direct, measurable result of the bans.

  26. j.a.s.o.n says:

    @Sam Glover: “There is no reason anyone needs to charge a 300% APR, even for risky lender. There are plenty of other, less usurious ways to encourage payment.”

    This is emphatically and unequivocally false.

    The high interest rates that are charged to certain borrowers because otherwise the lender would not, on average, recoup a profit from the borrower because of the high probability of default. High interest rates aren’t in place to encourage payment; they are in place to guarantee profit.

  27. Toof_75_75 says:

    @j.a.s.o.n:

    Out of curiosity, what is your take on the possible banning of trans-fat?

  28. Sam Glover says:

    @j.a.s.o.n: It neither emphatically nor unequivocally false, although the payday lending industry would have you believe otherwise.

    Payday lenders don’t charge high interest rates to “certain borrowers,” they charge them to everyone. You, me . . . everyone. Lending should be based on the risk posed by the person borrowing, not on a generalized risk based on a pattern of irresponsible lending (and borrowing).

    Moreover, some of the problems with payday lending isn’t just the APR charged, but the rollover features of the loans. Those are not related to risk, but are similar to the overlimit and late charges of credit cards. They are just profit-generating fees designed to keep borrowers paying as long as possible.

  29. nighthwk1 says:

    Unfortunately, I think Georgia still has a large number of car title loan companies…

    When I was living in Savannah, every couple of minutes there would be an annoying commercial for “TitleMax”. There were at least five of those in a 10 mile radius.

  30. j.a.s.o.n says:

    @Sam Glover: Your statement was “There is no reason anyone needs to charge a 300% APR, even for risky lender.” In my own words, and please let me know if I am misreading, you are stating that charging high interest rates is never justified. I responded that that is a false statement. And now you’re trying to justify your statement by saying well, “they charge them to everyone.” I don’t disagree that that is unnecessary. But that wasn’t the issue I was contending. I was arguing against your statement that high interest rates are never justified. Moreover, your statement that “[t]here are plenty of other, less usurious ways to encourage payment” completely misses the point of high interest rates.

    Regarding your statement that “[Rollover features of loans] are just profit-generating fees designed to keep borrowers paying as long as possible,” what decisions that businesses make aren’t motivated by profit?

  31. Sam Glover says:

    @j.a.s.o.n: Are you denying payday loans are usurious, or arguing that even though they are usurious, they should be legal?

    Payday loans are usurious by any definition I am aware of. So the only real question is should they be legal, anyway. To address that completely would take an awful lot of text. The Wikipedia article is a decent gloss on it.

    It also gets into the basic question whether the availability of credit is inherently positive or negative. Setting a rate of usury essentially is the government’s way of saying that provisions of credit at a certain level are no longer positive.

    A change in perception (fed by the credit industry, for better or for worse), is what led to the subprime lending movement that is now making headlines for the widespread failures of subprime mortgage loans, but that included the explosion of credit cards, payday loans, and more. The idea was that borrowers “off the charts” should still be able to secure credit to purchase homes. This is probably right. But the problem was that subprime lending–including payday lending–has had few controls and less supervision.

    This is the opposite of what you would think should happen. You would think that the riskier the borrower appears to be, the the lender would scrutinize the extension of credit.

    But payday lenders, like subprime mortgage lenders, extend credit recklessly, without regard to the risk of a particular borrower.

    On the one hand, I love the market. Let it right itself. But unfortunately, while the market is righting itself, the economy as a whole is suffering, and protectionist bailouts may just encourage further abuses while failing to remedy the problem.

    So yes, I support some regulation designed to curtail reckless lending practices. Not just to protect borrowers, but to protect the economy from aftershocks. The market will adapt to controls, too, and the best form of control is the most minimal–a national usury ceiling rather than a laundry list of “best practices” that are difficult or impossible to enforce.

  32. Esquire99 says:

    I think that Payday loans serve a very specific function that no other financial institution provides (save for the loan sharks). They serve the individual who needs money right this second (maybe for emergency car repairs, etc) but has poor credit, no credit cards (or nothing but maxed out ones), no savings, and no paycheck coming for a few days. Where else are they to turn if their car breaks down and they can’t afford to fix it, can’t charge it, and can’t go without the car? There are no other options. And while it is difficult to say the industry as a whole is not predatory, in a way, thats simply the nature of their customers. If their demographic was even the least bit financially savvy, and made good decisions regarding money, etc. they would not have to seek out these kind services to make ends meet. No one else is going to lend money to these people because they are high risk loans. What is better, using a legitimate financial business to get your money, who at worst it going to pursue legal action if you default, or pursue loan sharks, or other truly illegal methods that will end up getting them hurt? The problem with people who insist on “banning” legitimate businesses such as this aren’t looking at it from the customers perspective (those who actually depend on the service) and don’t offer alternatives to fill the void that banning the service will leave? And I do agree with the posters who insist that protecting consumers from making bad financial decisions (on top of those bad decisions that led them to the Payday loan service in the first place) should not be a function of the Government. No one is forcing these people to utilize these services other than themselves.

  33. j.a.s.o.n says:

    @Sam Glover: “Are you denying payday loans are usurious, or arguing that even though they are usurious, they should be legal?”

    I don’t think that they are usurious. I think they are justified by the risk that the typical borrower of a payday loan represents.

    You can compute the outrageously high APR and use pejoratives like “usurious” but those aren’t the terms that the borrowers think in. The borrowers that use payday loans have different needs than you and I can relate to and they think about things differently. The borrowers think in terms of the size of the fee they must pay. To them, $15 per $100 is reasonable. Make the fee $50 per $100 and I doubt any but the most desperate would engage in the transaction. As for the lenders, they set their price to offset the risk of engaging in the transaction and to offset the costs of processing the loan. FDIC research has shown “that fixed operating costs and loan loss rates do justify a large part of the high APRs charged on payday advance loans.” cf. Payday Lending: Do the Costs Justify the Price? (That paper also shows “that economic and demographic conditions in the neighborhoods where stores are located [does not] have much of an effect on profitability, although they do slightly influence default losses.”) That’s how markets are suppose to work.

    Consider a $250000 mortgage with 6% interest (monthly nominal rate). After making regular monthly payments for 30 years of $1498.88 the borrower of such a loan will have paid $289596.80 in interest! Outrageous, no? More interest than the cost of the house being purchased! Oh, the insanity! Do you think a banker should explain that’d you be paying so much in interest if you took out such a mortgage? Perhaps you’ve never thought about a mortgage in those terms before. Maybe you don’t find it outrageous because you realize that’s the only way you’d be able to get a mortgage. Tell the typical borrower of a payday loan that you’re paying $289596.80 to borrow $250000 and he’ll think you’re nuts. Completely nuts.

    “But payday lenders, like subprime mortgage lenders, extend credit recklessly, without regard to the risk of a particular borrower.”

    No. They aren’t reckless. They set their fee structure to recoup their costs and to compensate them for the risk they take by extending credit. They’ve priced their loans well. Low enough to attract borrowers, high enough to make some profit. Lenders aren’t in the business of lending so that you and I and everyone else has access to money to fund our life; they are in the business of lending to make money.

    “[T]he best form of control is the most minimal–a national usury ceiling rather than a laundry list of “best practices” that are difficult or impossible to enforce.”

    What would you set the interest rate at?

    What frustrates me about all the arguments I see here against payday loans is the way they try to frame the problem as if the borrowers are victims and the lenders are predators. They just state perjoratives and platitudes without any supporting facts. Oh, look at the usurious 300% interest rate! And, the lenders position themselves in low-income markets to exploit the poor! And they eat babies too! The borrowers aren’t victims; they wouldn’t engage in the loans if they thought the price was too high. And the lenders aren’t predators; they are a business motivated by profit. Again, that’s how capitalist markets work.

    My thinking on the issue has changed, and markedly so, as a result of the empty arguments I read on this site. As I saw these arguments repeated over and over I started to question them and did some research on the issue and now I have a completely different opinion than I did before.

  34. Sonnymooks says:

    Anyone ever notice that politicians seem to have a simple equation.

    Poor=desperate=unable to make decisions for themselves (i.e. stupid).

    The logic is pretty simple here, poor people don’t know any better and if given a choices will do stupid things that harm themselves (think children with scissors) so they need the goverment to protect them from themselves since they are poor (which equals desperate which equals stupid) from being taken advantage of by the rich (which equals powerfull which equals smart and sometimes equals predators).

    Its tells alot what a politician thinks of his or her voters when he chooses to limit what choices or decisions they may or may not make on the belief that they may or will make the wrong decisions and this must be prevented from doing so.

    I will concede that a politician has a right to believe such things and act in those interests that as he or she feels is right due to the fact that those same people whom the politician equates with having the brains of a small child can honestly say they know whats best for the voters since those voters voted for them.

  35. I personally feel in favour of these payday loans as it provides the borrowers with an option to meet their need with an added advantage of maintaining their privacy. But i dont think the Georgian think so. anyway the final thing is that the majority wins and the people has to wait again to get the privilage provided by these instant cash loans.