On June 10, 2005, the 11th Circuit Court of Appeals issued an important ruling that validates the ability of states to regulate "rent-a-bank" relationships between state chartered banks and payday lenders. The 11th Circuit ruled that the Federal Deposit Insurance Act does not preempt Georgia's state law on payday lending, according to Responsible Lending.org. Most payday lenders charge interest rates of 380%!
A Georgia law prescribes harsh felony penalties for lenders who make loans of $3,000 or less in violation of Georgia's existing lending and consumer protection laws. Passed with bipartisan support and signed by Gov. Perdue in April 2004, SB 157 caps small consumer loans at 60 percent per year, Georgia's small loan usury rate. The law explicitly bars non-bank lenders from partnering with out-of-state banks in order to avoid Georgia's usury limit.
Four out-of-state banks that make loans through Georgia payday lenders have filed lawsuits in federal court challenging the Georgia law.
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