Clay v. Oxendine

• Decision Date: 27 March 2007
• Docket Number: No. A06A1695.,A06A1695.
• Citation: 645 S.E.2d 553,285 Ga. App. 50
• Parties: CLAY et al., v. OXENDINE et al.
• Court: Georgia Court of Appeals

285 Ga. App. 50

645 S.E.2d 553

CLAY et al., v. OXENDINE et al.

No. A06A1695.

Court of Appeals of Georgia.

March 27, 2007.

Reconsideration Denied April 13, 2007.

David G. Crockett, Atlanta, for appellants.

Thurbert E. Baker, Attorney General, Isaac Byrd, Deputy Attorney General, Sidney R. Barrett, Jr., Senior Assistant Attorney General, Amy Meyer Burns, Assistant Attorney General, for appellees.

BERNES, Judge.

The appellants in this case include numerous individuals and corporations who operate consumer cash advance and finance businesses in the State of Georgia.¹ Appellees John Oxendine, the Industrial Loan Commissioner for the State of Georgia, and Thurbert E. Baker, the Attorney General for the State of Georgia (collectively, the "state"), commenced this civil action alleging that appellants' use of a consumer "sale/leaseback" transaction violates the anti-payday lending statute, OCGA § 16-17-1 et seq., and the Georgia Industrial Loan Act, OCGA § 7-3-1 et seq. ("GILA"). The state thereafter moved for partial summary judgment as to appellants' liability and moved to strike appellants' jury demand. The trial court granted the motions. On appeal, appellants contend that the trial court erred (1) by ruling that their "sale/leaseback" transactions constituted illegal payday loans as a matter of law; (2) by denying their right to a jury trial; and (3) by holding the appellant corporate officers individually liable. For the reasons that follow, we affirm.

"Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9-11-56(c)." Matjoulis v. Integon Gen. Ins. Corp., 226 Ga.App. 459(1), 486 S.E.2d 684 (1997). We review a trial court's grant of summary judgment de novo, construing the evidence, and all reasonable conclusions and inferences drawn from it, in favor of the nonmovant. Id.

So viewed, the evidence shows that appellants operate numerous consumer cash advance and finance businesses serving citizens throughout the State of Georgia. In 2002, the state investigated appellants' businesses in response to consumer complaints that appellants charged excessive interest and engaged in abusive collection tactics. Appellants argued that their practice of making cash advances did not amount to loans. Following that investigation and an administrative hearing, the Industrial Loan Commissioner issued a finding that appellants were engaging in illegal payday lending and ordered them to cease and desist in those business practices. See USA Payday Cash Advance Centers v. Oxendine, 262 Ga.App. 632, 632-633 585 S.E.2d 924 (2003).

In November 2002, appellants changed their business practices to engage in a "rent a bank" arrangement, whereby they served as the agent of an out-of-state bank that made payday loans. The Commissioner's investigation of this payday loan arrangement was addressed in BankWest v. Oxendine, 266 Ga.App. 771, 598 S.E.2d 343 (2004). Thereafter, the provisions of OCGA §§ 16-17-1(c), 16-17-2(b)(4), and 16-17-2(d) were enacted, effective May 1, 2004, to statutorily declare "rent a bank" arrangements to be violations of GILA and the Georgia usury statutes for which civil and criminal liability would be imposed.

Appellants then began to engage in the "sale/leaseback" transactions at issue here, whereby their consumer customers purportedly sold personal property items to appellants, then immediately leased the items back from appellants. Following an investigation, the state concluded that the "sale/leaseback" transactions were nothing more than disguised, illegal payday loans. Consequently, the state commenced the instant action.

1. In granting partial summary judgment to the state on the issue of liability, the trial court concluded that appellants' "sale/leaseback" transactions were payday loans in violation of the anti-payday lending statute (OCGA § 16-17-1 et seq.), GILA (OCGA § 7-3-1 et seq.), and the Commissioner's previously issued cease and desist order. On appeal, appellants argue that the trial court failed to apply proper summary judgment standards requiring that the evidence be construed in their favor as the nonmovants, and that the trial court's ruling was precluded by evidence that their customers had no obligation to repay the debt. We discern no error.

A payday loan is a loan of short duration, typically two weeks, at an astronomical annual interest rate. Payday loans are the current version of salary buying or wage buying. The fees, charges, and interest on a payday loan are between 15 percent and 30 percent of the principal for a two-week loan, constituting a pretext for usury.

(Citations and punctuation omitted.) USA Payday Cash Advance Centers, 262 Ga.App. at 633-634, 585 S.E.2d 924. "Because the maturity date of these loans is usually set to coincide with the borrower's next payday, the loans are often called `payday loans.'" BankWest, 266 Ga.App. at 771, 598 S.E.2d 343.

The Georgia General Assembly enacted OCGA § 16-17-1 et seq. to declare payday loans illegal and to impose "substantial criminal and civil penalties over and above those currently existing under state law ... in order to prohibit this activity in the State of Georgia and to cause the cessation of this activity once and for all." OCGA § 16-17-1(c). Payday lending under this statutory scheme "encompasses all transactions in which funds are advanced to be repaid at a later date, notwithstanding the fact that the transaction contains one or more other elements." OCGA § 16-17-1(a). A payday loan is illegal "notwithstanding the fact that the transaction also involves ... [t]he selling or providing of an item, service, or commodity incidental to the advance of funds." OCGA § 16-17-2(b)(2).

To determine whether there has been a violation of OCGA § 16-17-2,

the trial court shall be authorized to review the terms of the transaction in their entirety ... [and] shall not be bound in making such determination by the parol evidence rule or by any written contract but shall be authorized to determine exactly whether the loan transaction includes the use of a scheme, device, or contrivance and whether in reality the loan is in violation of the provisions of subsection (a) of Code Section 16-17-2 based upon the facts and evidence relating to that transaction and similar transactions being made in the State of Georgia.

OCGA § 16-17-6.

Payday loans under $3,000 are further regulated by GILA, OCGA § 7-3-1 et seq.

Since [GILA] was enacted to define and prevent usury and to provide a source of regulated funds for those who had been borrowing at usurious rates from loan sharks, street shylocks and wage-buyers, then [payday loans] come within the jurisdiction of the Act.... If the maximum interest rate is over the limit set by OCGA § 7-3-14 of ten percent[²] or the lender fails to hold an industrial license issued by the Commissioner, then "payday loans" violate GILA. See 2002 Op. Atty. Gen. No.2002-3.

USA Payday Cash Advance Centers, 262 Ga.App. at 634, 585 S.E.2d 924.³ The Industrial Loan Commissioner is vested with authority to investigate, conduct hearings, and issue a cease and desist order if he has cause to believe that any person is in violation of GILA. OCGA § 7-3-23. A violation of the cease and desist order constitutes a public nuisance for which the Commissioner is entitled to an injunction to be granted by the superior courts. OCGA § 7-3-23.

With this statutory framework in mind, we turn to the contentions in the present case. Appellants contend that their "sale/leaseback" transactions cannot be construed as loans coming within the provisions of OCGA § 16-17-1 et seq. and GILA because a loan entails the advancement of funds that must be repaid at a later date. See OCGA §§ 7-3-3(4),⁴ 16-17-1(a).⁵ Appellants emphasize that the transactions at issue were reflected by a written bill of sale identifying the property sold and the sales price and by a lease agreement disclosing the lease terms, the initial lease payment due, and three options that can be exercised at the end of the lease term. The leases purportedly allowed the customer to either (1) renew the lease for another lease period; (2) repurchase the property for the sales price, without credit for any rental payments made; or (3) return the property and owe nothing more. Appellants contend that the third option to return the property without rendering payment under the lease agreement precludes the transaction from being considered a loan, since there is no obligation to repay the money received by the consumer for the sale of his or her items.

Notwithstanding appellants' suggestion, however, the terms of their written lease with customers are not talismanic in this context.

[W]hether a given transaction is a purchase ... or a loan of money ... depends, not upon the form of words used in contracting, but upon the real intent and understanding of the parties. No disguise of language can avail for covering up usury, or glossing over an usurious contract. The theory that a contract will be usurious or not, according to the kind of paper bag it is put up in, or according to the more or less ingenious phrases made use of in negotiating it, is altogether erroneous. The law intends that a search for usury shall penetrate to the substance.

Pope v. Marshall, 78 Ga. 635, 640(2), 4 S.E. 116 (1887). See also BankWest, 266 Ga.App. at 776(1), 598 S.E.2d 343.⁶ As such, we do not consider appellants' claims in a vacuum, but rather must look at the totality of the circumstances in analyzing whether appellants' "sale/leaseback" arrangement was a sham transaction to disguise an illegal payday loan scheme.

Regardless of the written provisions of the sale/leaseback contracts, the state presented evidence establishing that appellants' sale/leaseback arrangements contained the same salient features of a payday loan transaction that violates OCGA § 16-17-1 et seq. and GILA. An audit...