Three years ago Georgia state lawmakers decided that payday loans were more of a nuisance than a help to their citizens. These short-term loans designed to provide temporary relief for unexpected financial emergencies, ultimately drained the finances of those utilizing them. The loans, as helpful as they may have seemed, have extremely high interest rates—as high as 59% in some cases.
Three years ago Georgia state lawmakers decided that payday loans were more of a nuisance than a help to their citizens. These short-term loans designed to provide temporary relief for unexpected financial emergencies, ultimately drained the finances of those utilizing them. The loans, as helpful as they may have seemed, have extremely high interest rates—as high as 59% in some cases.
A NEW PAYDAY LOAN LAW
The laws which targeted payday loan companies acting as “loan sharks”, have recently been challenged by payday lending lobbyists who claim that their businesses have been hurt by the ban. On Thursday, February 22nd 2007, a House committee approved a measure which would designate a cap on fees of $15 per $100 charged for payday loans. This measure would also prevent the loans from accruing interest, but would allow a one-time processing fee of up to $112.50 to be charged on loans up to $750.00. The new initiative would also prohibit customers from rolling loans from one month to the next.
The new measure, passing with a 17-11 vote, comes as a relative surprise since so many other states are beginning to crack down on their own payday lending companies. As a result of the proliferation of payday loan “abuse”, Congress has established a 36% annual cap on loans made to military personnel after shocking reports revealed that thousands of troops were (and had been) in debt to payday companies. The debate over the legality of these types of loans centers around the ways companies go around the law with regard to interest fees. On Thursday (Feb. 22) many payday loan supporters attended committee proceedings regarding the loan ban. Their argument for the services hinges on the fact that there are a huge number of Georgia residents with poor credit who need emergency funds. Jabo Covert, a representative from a Tennessee-based lending company states:
“You can’t stick your head in the sand and think that the demand went away, the customers went away and the need for short-term loans has vanished.”
But supporters of the ban admit that loosening restrictions on short-term loan agreements allows too much room for loan sharks and other financial predators to go around the laws. With many companies charging three-digit annual interest rates, Consumer Federation of America representative Jean Ann Fox claims that more and more U.S. states are considering bans on payday lending entirely. She further expressed that Georgia is the only state with illegal payday lending, where Congress is considering loosening the ban.
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