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Ga. Supreme Court Considers Online Payday Lender Legality

June 21st, 2016

A case before the Supreme Court of Georgia Tuesday asks whether online payday lenders can legally operate in the state.

Georgia law prohibits payday loans, which are small loans that typically have to be paid back within a short period – often at a great cost.

Nevertheless, three online companies, Western Sky Financial, Delbert Services and CashCall, provided these kinds of loans to Georgia residents. And they’re now arguing the loans weren’t illegal because the companies were based out of state.

According to Georgia’s attorney general, Western Sky Financial collected more than $15 million from Georgia residents in offering loans.

Alex Horowitz at Pew Charitable Trusts’ Small Dollar Loan Project said similar cases have come up across the country.

“There are questions about authority and whether state attorneys general have the authority to regulate this type of transaction where the lender claims choice of law from another state,” Horowitz said.

The challenge comes from the fact that all of the laws regulating the short-term loan industry have been at the state level, Horowitz said.

That’s allowed for online payday lenders to hold addresses in states with less stringent laws while they provide loans in those with more restrictive laws, like Georgia.

However, Horowitz said, the regulations could become more standard across the country soon. The Consumer Financial Protection Bureau issued new federal rules earlier this month that will affect the entire payday loan industry — no matter where the companies are based.

For now, Georgia’s attorney general is arguing to the state Supreme Court that anyone offering loans within the state must follow its laws.