Bankwest, Inc. v. Baker

• Decision Date: 13 May 2004
• Docket Number: No. CIV.A 1:04-CV-988-MHS.,CIV.A 1:04-CV-988-MHS.
• Citation: 324 F.Supp.2d 1333
• Parties: BANKWEST, INC., et al., Plaintiffs, v. Thurbert E. BAKER, et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

324 F.Supp.2d 1333

BANKWEST, INC., et al., Plaintiffs, v. Thurbert E. BAKER, et al., Defendants.

No. CIV.A 1:04-CV-988-MHS.

United States District Court, N.D. Georgia, Atlanta Division.

May 13, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Ashley Carraway, Atlanta Legal Aid Society, Atlanta, GA, Gary Jay Leshaw, Leigh Braslow Altman, Gary Leshaw and Associates, Decatur, GA, for Center for Responsible Lending (CRL), AARP, Atlanta Legal Aid Society, Inc., Consumer Federation of America, Georgia Legal Services Program, Georgia Watch, National Association of Consumer Advocates, National Consumer Law Center, Community Financial Services Association of America, Ltd., movants.

Michael C. Russ, King & Spalding, Martin Moody Wilson, Alan William Loeffler, Troutman Sanders, Robert A. Bartlett, Charles E. Campbell, Larry Dwight Floyd, Jr., McKenna Long & Aldridge, Atlanta, GA, Charles K. Seyfarth, phv, Robert M. Buell, phv, Bowman and Brooke, Richmond, VA, for BankWest, Inc., Advance America, Cash Advance Centers of Georgia, Inc., plaintiffs.

Sidney R. Barrett, Jr., Isaac Byrd, Thurbert E. Baker, Samantha M. Rein, Office of State Attorney General, Atlanta, GA, for Thurbert E. Baker, Attorney General of the State of Georgia, in his official capacity, Cathy Cox, Secretary of State of the State of Georgia, in her official capacity, defendants.

ORDER

SHOOB, Senior District Judge.

These consolidated cases¹ came on for hearing on April 27, 2004, on plaintiffs' motions for a preliminary injunction enjoining enforcement of Georgia's new payday lending law, Act No. 440 (S.B. 157), to be codified at O.C.G.A. §§ 16-17-1 et seq. (the Act),² on the grounds that it is unconstitutional. The Act was to go into effect on May 1, 2004. On April 30, 2004, in order to provide time for the Court to consider the voluminous filings submitted by the parties, the Court entered a temporary restraining order restraining enforcement of the Act against plaintiffs until May 15, 2004. Now, after carefully reviewing the briefs,³ affidavits, and other evidence submitted, and considering the arguments of counsel, the Court enters the following findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a). Based on its findings and conclusions, the Court denies plaintiffs' motions.

FINDINGS OF FACT

I. The Parties

Plaintiffs are state-chartered banks located in South Dakota and Delaware (the Banks) and their non-bank agents (the Agents).

The Banks are BankWest, Inc., and Community State Bank, both located in South Dakota, and First Bank of Delaware and County Bank of Rehoboth Beach, Delaware. The Banks' deposits are insured by the Federal Deposit Insurance Corporation (FDIC). As "insured depository institutions," 12 U.S.C. § 1813(c)(2), the Banks are subject to supervision, regulation, and examination by the FDIC.

The Agents are Advance America, Cash Advance Centers of Georgia, Inc. (Advance America), a Delaware corporation with its principal place of business in Spartanburg, South Carolina; First American Cash Advance of Georgia, LLC, a Tennessee limited liability company; Cash America Financial Services, Inc., a Delaware corporation; Georgia Cash America, Inc., a Georgia corporation; Creditcorp of Georgia, LLC, a Delaware limited liability company; and Express Check of Georgia, LLC, a Tennessee limited liability company. As "institution-affiliated parties," 12 U.S.C. § 1813(u)(1), they are also subject to supervision, regulation, and examination by the FDIC.

Defendants are Thurbert E. Baker, Attorney General of Georgia, and Cathy Cox, Secretary of State of Georgia. Both are sued in their official capacities only.

II. Plaintiffs' Payday Lending Programs

Plaintiffs make small, short-term loans to Georgia borrowers at very high interest rates. The loans are single-advance, single-payment loans in amounts up to $500 for terms of four to forty-five days. The maturity date usually coincides with the borrower's next payday, so the loans are often called "payday loans."

At maturity, the borrower is required to repay the principal amount advanced plus a finance charge or fee of anywhere from 17% to 27% of the amount advanced, depending on the term of the loan. For a two-week loan, these charges are equivalent to an annual percentage rate (APR) of interest between 443% and 520%.

The loans are evidenced by a loan agreement or promissory note containing disclosures required by the federal Truth in Lending Act, including APR, finance charge, amount financed, and total of payments. The agreement or note also contains a waiver of jury trial and arbitration agreement providing that all disputes, except those within the jurisdiction of a small claims tribunal, must be resolved through binding arbitration. The arbitration agreement includes a waiver of the right to participate in a class action, either as a class representative or a class member.

The Banks, which have no physical presence in Georgia, entered into agreements with the Agents to market and service the payday loans.⁴ Under the agreements, the Agents are responsible for establishing retail stores where borrowers can apply for and obtain loans, marketing the loans, servicing the loan applications, collecting payments on the loans, maintaining records, and reporting to the Banks. The Banks are responsible for establishing the terms and features of the loans, including the loan amounts, fees and charges, interest rates, repayment terms, credit limits, and credit standards.

The Agents receive loan applications from prospective borrowers at their stores in Georgia and transmit the application information to the Banks' loan processing agents for approval or denial.⁵ If the loan is approved by the Bank, the Agent obtains from the borrower a signed loan agreement or promissory note, which identifies the Bank as the lender, and a personal check payable to the Bank in the amount of the loan plus interest. The Agent then provides the borrower a loan funding check, which is issued electronically by the Bank, signed by an officer of the Bank, and drawn on an account owned by the Bank. The Agents receive all payments and collections on the loans and deposits them into local bank accounts owned by the Banks.

As compensation for their services, the Agents receive a fee calculated according to a formula contained in their respective marketing and servicing agreements. In the case of BankWest and Advance America, the fee is $13.80 for every $100 loaned, which is equal to 81% of the revenues generated by the loan. In the case of Community State Bank and First Bank of Delaware, the record does not reflect the precise amount of their Agents' compensation, but their respective verified complaints allege that the fees "represent a predominant share of Loan revenues." The record does not reflect the amount of the fee paid by County Bank of Rehoboth Beach, Delaware, to its Agent, Express Check.

The Agents pay all of the costs of operating their stores, including rent; employee salaries and benefits; equipment, fixtures, and improvements; taxes; advertising; and all costs of complying with record-keeping and reporting requirements.

III. The Act

The Act amends Georgia's criminal code, Title 16, by adding an entirely new Chapter 17. The Act also amends the existing Georgia Industrial Loan Act, O.C.G.A. § 7-3-29, to permit class actions against unlicensed lenders, and Georgia Racketeer Influenced and Corrupt Organizations (RICO) Act, O.C.G.A. § 16-4-3, to include payday lending in the definition of racketeering activity.

The Act broadly defines "payday lending" to include "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...." O.C.G.A. § 16-17-1(a). This broad definition, however, expressly incorporates the exceptions and examples contained in later sections of the Act. Id.

It is the express general intent of the Act "to reiterate that in the State of Georgia the practice of engaging in activities commonly referred to as payday lending ... are currently illegal and to strengthen the penalties for those engaging in such activities." O.C.G.A. § 16-17-1(e).

The Act sets out the General Assembly's determination "that various payday lenders have created certain schemes and methods in order to attempt to disguise these transactions or to cause these transactions to appear to be `loans' made by a national or state bank chartered in another state in which this type of lending is unregulated, even though the majority of the revenues in this lending method are paid to the payday lender." O.C.G.A. § 16-17-1(c).

The General Assembly goes on to declare "that the use of agency or partnership agreements between in-state entities and out-of-state banks, whereby the in-state agent holds a predominant economic interest in the revenues generated by payday loans made to Georgia residents, is a scheme or contrivance by which the agent seeks to circumvent Chapter 3 of Title 7, the `Georgia Industrial Loan Act,' and the usury statutes of this state." Id.

The Act makes it unlawful for any person to engage in any business "which consists in whole or in part of making, offering, arranging, or acting as an agent in the making of loans of $3,000.00 or less," unless one of several enumerated exceptions applies. O.C.G.A. § 16-17-2(a). The exceptions cover (1) persons engaging in financial transactions permitted under various other Georgia laws, including the Georgia Industrial Loan Act and the law relating to interest and usury; (2) loans that are lawful under the terms of other designated Georgia laws, such as that relating to pawnbrokers; and (3) qualified tax refund anticipation loans. O.C.G.A. § 16-17-2(a)(1), (2), and (4).

The Act also exempts banks, such as the plaintiff Banks in this case, that are chartered under the laws of another state and...