Challenge to Ga. law denied

John O'Brien May 15, 2007, 4:00pm


ATLANTA - Georgia's Supreme Court on Monday struck down the appeal of two men who challenged the constitutionality of the state's law prohibiting payday loans.

The criminal convictions of Nathaniel Glenn and John Dunlap were upheld, though they argued the state law denied them equal protection because it "grants explicit exemptions to out-of-state banks that make payday loans in Georgia and the local agents of such out-of-state banks, when operating under certain defined financial circumstances, thereby treating out-of- state banks differently than in-state residents," says the opinion, authored by Justice Carol Hunstein.

Payday loans are short-term loans, typically for 14 days, that are secured by a post-dated check or by an agreement authorizing an electronic debit for the full loan amount, plus fees, from the consumer's account.

Glenn was convicted of 49 misdemeanor violations of the act, which prohibits making payday loans of $3,000 or less with illegal interest rates. Dunlap was convicted of 46 counts.

Hunstein wrote that the two needed to show that they are similarly situated as out-of-state banks but could not. And even if they could have proved it, Hunstein says the rational distinction between in-state and out-of-state lenders bears directly on the legitimate purpose of the legislation.

"In light of the protected status of out-of-state banks under Federal law," Hunstein wrote, "we conclude that the Legislature had a rational basis for creating a class based on those in-state payday lenders who are subject to State regulation and we hold that the classification bears an obvious and direct relation to the legitimate purposes of the legislation as set forth in OCGA § 16-17-1 (deterring illegal, unconscionable payday lending in Georgia because of its adverse effect on the citizens of this State).

Glenn and Dunlap also claimed the law was too vague because it did not specifically prohibit the types of lending schemes in which they participated, "land options with rebates" by Glenn and "cashing checks" by Dunlap.

"We find no merit in this contention," the opinion says. "The Legislature expressly recognized that "various payday lenders have created certain schemes and methods in order to attempt to disguise these transactions," OCGA § 16-17-1 (c), and accordingly defined the prohibited conduct in a manner to encompass all of the creative ways payday lenders might use to avoid the Act."

The two received one year of probation for each violation of the law.

Recently, West Virginia Attorney General Darrell McGraw settled with his state's last payday lender.

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