In some states, there is no limit on the interest rate a payday store may charge a borrower. Rather, they see the site are permitted to loan money directly to borrowers and charge any interest rate they wish.
In contrast, Georgia’s usury laws present a serious problem for the plaintiff payday stores. In Georgia, the maximum legal annual percentage rate („APR“) for loans of $3,000 or less is 16%. See Ga.Code Ann. § 7-4-2(a) (2). 2 This means that a payday store is limited to the 16% APR provided under Georgia law if it attempts to loan money directly to its customers. However, under § 27(a) of the FDIA, a state-chartered bank is authorized to charge the rate of interest allowed under the laws of its charter state in any other state where it does business. Thus, an out-of-state bank is not limited by Georgia’s 16% cap.
Accordingly, the local payday stores in this case have entered into arrangements with out-of-state banks to serve as their agents in Georgia. By doing so, the payday stores are marketing and procuring the high-interest rate loans in Georgia allowed in the charter states of the out-of-state banks.
The typical scenario is that a borrower goes to a payday store in Georgia, receives a single loan payment of up to $500, and signs a promissory note or loan agreement identifying the out-of-state bank as the lender. At the time of receiving the loan proceeds, the borrower often gives the payday store a post-dated check for the loan repayment plus finance charge. The loan matures within four to forty-five days, usually on the borrower’s next payday. On that day, the borrower must repay the principal, plus a finance charge of 17% to 27% of the principal, depending on the term of the loan. When the finance charge is calculated as an APR, it far exceeds the maximum permitted under Georgia law. In fact, the charges on a typical two-week payday loan have an APR between 442% and 520%.
First, there is the contract between the out-of-state bank and the borrower
The payday stores maintain many physical locations in Georgia and pay all costs associated with maintaining those locations, including rent, equipment costs, staffing costs, taxes, and advertising. Although the out-of-state bank advances the initial loan funds, the payday stores market the loans, process applications, collect loans after maturity, submit reports about the loans to the out-of-state bank, and remit the loan payments to a local bank account in the out-of-state bank’s name. As detailed later, the payday stores effectively do all the work and retain 81% of the loan revenues.
The defendant in this case is, essentially, the State of Georgia. As discussed below, the State of Georgia prohibits Georgia-licensed businesses, such as the plaintiff in-state payday stores from (1) making payday loans directly to borrowers, and (2) acting as agents when paid the predominate economic interest in the payday loan.
In such states, there is no need for these plaintiff payday stores to associate themselves with out-of-state banks
Just as there are two types of plaintiff in this case, there are two types of contract. The relationships between the out-of-state banks and the borrowers are governed by written loan contracts. In the consumer loan contract provided by plaintiff BankWest, which we have been led to believe is typical, BankWest is identified as „the Lender“ and Advance America, the payday store, is identified as „the fiscal agent and loan marketer/servicer.“ The loan contract discloses the ount of the loan, and the total amount that will have to be repaid by the borrower. The first page of the loan contract, which contains all of the financial terms of the loan, is signed by only the borrower and BankWest. 3 Thus, BankWest, as the lender, sets the terms and features of the loans.