By Matt Wilson
When Ray McDowell opened a payday lending store on Ringgold Road in East Ridge near the Georgia state line, he didn't realize the location would give his business a boost.
But he said at least 10 percent of his loan customers at Advanced Check Cash Advance come from Georgia, where payday lending was prohibited three years ago.
"There are quite a few," Mr. McDowell said of Georgians taking the short-term loans. "It certainly did help us, being just across the state line."
That could change if a bill making its way through the Georgia General Assembly becomes law and re-opens the door to the industry.
House Bill 163 would let payday lending companies back into Georgia, albeit with licensing restrictions and limits on loan amounts.
Industry representatives said they provide a service for people who have nowhere else to turn, except to go into other states or to offshore lenders who provide loans online.
A House subcommittee passed the bill in an 11-3 vote Wednesday. A vote by the full Banks and Banking Committee is expected today.
Allan Jones, founder of Cleveland, Tenn.-based Check Into Cash, the largest privately owned payday lending company in the nation, said Wednesday that "there's a huge demand" for payday lending, and he definitely plans to open locations in Georgia immediately if the bill becomes law.
As for the proposal's chances, Mr. Jones said, "There's a lot of momentum for the bill."
A number of Georgia residents applying for payday loans in the Chattanooga area declined to comment on the issue for this story.
A problematic practice?
Georgia Insurance Commissioner John Oxendine, who opposes the bill, said payday lending leads to "economic servitude."
He responded to the argument that Georgia should allow the practice because residents otherwise will go to border states.
"If they legalized prostitution in Alabama tomorrow, lots of people from Tennessee would cross the state line," he said. "Should you legalize prostitution in Tennessee because Alabama's doing it?"
Georgia consumers have options, Mr. Oxendine said.
"We have small consumer finance companies that do make loans to consumers," he said.
The difference, Mr. Oxendine said, is that the companies now open in Georgia require payments on an installment basis rather than a fee basis. Where payday lenders charge a fee and require full payment after a set time period, the finance companies set a timetable for weekly or monthly payments, as a bank does with a loan.
"At a certain date in the future, (the consumer) will have that paid off," Mr. Oxendine said. "If you're going to have debt, that's the kind of debt to have."
Under a previous version of the bill, Mr. Oxendine's department would have enforced the law, but the bill has been changed to come under auspices of the Banking and Finance Department.
That department's commissioner, Rob Braswell, said his department is "neutral" on the bill.
Mr. Jones said the arguments against the payday lending industry -- such as that a $15 fee on a two-week, $100 loan would equal a 390 percent annual percentage rate of interest -- are misleading. If a loan was paid off a day early or a day late, that rate changes drastically, he said.
"Trying to explain that to a consumer is very confusing," he said, saying an APR has "no meaning" for loans over a period of less than a year.
Mr. Jones said his industry's "bad reputation" is unwarranted and that the rare complaint he gets from customers is due to being rejected for loans rather than getting caught in a "cycle of debt."
"How do you battle that? How do you unring that bell?" he said of opponents' arguments against the industry.
Support for bill
Advocates for allowing payday lenders to return to the state, including Willie Green, executive director of Georgians for Cash Advance, argue that consumers are being babied by state government.
"They believe that people unlike them are just po' chillin' who must be parented by those who know better than they do what's in their best interest," he wrote in an open letter to the Legislative Black Caucus.
Georgia's General Assembly effectively banned payday lending in 2004. The practice was illegal before that, but under a law that allowed companies to provide payday loans in the state through out-of-state banks.
State Rep. Martin Scott, R-Rossville, a member of the House committee that oversees banking, has said he would support the bill as long as consumer protections are enforced.
"I would be open to the re-introduction of free-market lending practices, as long as there's oversight," he said.
Consumer advocates, however, worry the proposed law's protections are not strong enough.
"It's just going to return to the same old payday lending," said Coley Ward, a spokesman for Atlanta-based Georgia Watch, a consumer watchdog organization. "There's no reason to think if we try to regulate the industry that the lenders are going to adhere to those regulations."
Mr. Ward said that if residents looking for loans go to other states, that's just an unfortunate situation over which Georgia has no say.
"We can't control what our neighboring states do," Mr. Ward said.
For his purposes, payday lender Mr. McDowell said he has no problem with the bill's proposals.
"It would create opportunities in unsaturated markets," he said.
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