ATLANTA – A new report from the National Consumer Law Center finds that while some states made progress in the last 12 months toward protecting residents from predatory short-term and longer-term loans, Georgia’s awful 62% APR cap on $500, six-month loans was left unchanged–allowing high-cost loans to trap Georgia consumers in a cycle of debt.
“Small-dollar lenders prey on financially insecure consumers by providing high-interest quick cash loans many people can’t afford to repay,” said Liz Coyle, executive director of Georgia Watch, “causing these Georgians to go deeper in debt as they borrow to pay off the first unaffordable loan.” Coyle adds, “Even riskier for consumers here, Georgia’s usury cap doesn’t apply to car title loans, which are treated as pawns subject to interest rates as high as 300%.”
Predatory Installment Lending in the States includes maps and tables for annual percentage rate caps in every state and the District of Columbia and tracks installment loan changes in the states since mid-2021. The report provides key recommendations for Georgia lawmakers to protect residents from predatory high-cost lending:
- Cap APRs, including fees, at 36% for smaller loans, such as those of $1,000 or less, with lower rates for larger loans;
- Prohibit loan fees or strictly limit them to prevent fees from being used to undermine the interest rate cap and acting as an incentive for loan flipping;
- Prevent loopholes for open-end credit. Rate caps on installment loans will be ineffective if lenders can evade them through open-end lines of credit with low-interest rates but high fees;
- Ban the sale of credit insurance and other add-on products, which primarily benefit lenders and increase the cost of credit; and
- Examine consumer lending bills carefully. Predatory lenders often propose bills that obscure the true interest rate, for example, by presenting it as 24% per year plus 7/10ths of a percent per day, instead of 279%. Or the bill may list the per-month rate rather than the annual rate. Get a calculation of the full APR, including all interest, all fees, and all other charges, and reject the bill if it is over 36%.
“In the absence of rate limits at the federal level, state interest and fee caps are the primary bulwarks against predatory lending,” said Carter Carter, deputy director of the National Consumer Law Center and author of the report. “By following these guidelines, states can ensure that their laws are effective at protecting consumers.”
Related Resources
- NCLC’s High-cost Loans online content
- Brief: After Payday Loans: Consumers Find Better Ways to Cope with Financial Challenges, August 2021
- Brief: Why Cap Interest Rates at 36%?, August 2021
- State Rate Caps for $500 and $2,000 Loans, March 2021
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Founded in 2002, Georgia Watch is a statewide, non-profit consumer advocacy organization working to inform and protect Georgia consumers on matters that significantly impact their quality of life, including the effects of predatory business practices, the high cost of utilities and healthcare, and restricted access to the civil justice system.
Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for consumer justice and economic security for low-income and other disadvantaged people in the U.S. through its expertise in policy analysis and advocacy, publications, litigation, expert witness services, and training.
