I thought I had been told that there really is no longer a maximum interest rate that could be charged in Georgia, but I may have dreamed it. Could anyone provide me with some information on where I could locate this? Thank you.

Usury is found in O.C.G.A. 7-4-2 which is shown below. You'll need to look at the Industrial loan act if you make GILA loans. HOWEVER there is a Criminal Rate of interest shown in 7-4-18 which specifies 5% per month or 60% per annum as criminal. This is also shown below. You may need to review section 7-4 in it's entirety. This can be found here

7-4-2

(a)(1)(A) The legal rate of interest shall be 7 percent per annum simple interest where the rate percent is not established by written contract. Notwithstanding the provisions of other laws to the contrary, except Code Section 7-4-18, the parties may establish by written contract any rate of interest, expressed in simple interest terms as of the date of the evidence of the indebtedness, and charges and any manner of repayment, prepayment, or, subject to the provisions of paragraph (1) of subsection (b) of this Code section, acceleration, where the principal amount involved is more than $3,000.00 but less than $250,000.00 or where the lender or creditor has committed to lend, advance, or forbear with respect to any loan, advance, or forbearance to enforce the collection of more than $3,000.00 but less than $250,000.00.

(B) Where the principal amount is $250,000.00 or more, or the lender or creditor has committed to lend, advance, or forbear with respect to any loan, advance, or forbearance to enforce the collection of $250,000.00 or more, the parties may establish by written contract any rate of interest, expressed in simple interest terms or otherwise, and charges to be paid by the borrower or debtor.

(C) Nothing contained in this subsection shall be construed to prohibit the computation and collection of interest at a variable rate or on a negative amortization basis or on an equity participation basis or on an appreciation basis.

(2) Where the principal amount involved is $3,000.00 or less, such rate shall not exceed 16 percent per annum simple interest on any loan, advance, or forbearance to enforce the collection of any sum of money unless the loan, advance, or forbearance to enforce the collection of any sum of money is made pursuant to another law.

(3) As used in this Code section, the term 'interest' means a charge for the use of money computed over the term of the contract at the rate stated in the contract or precomputed at a stated rate on the scheduled principal balance or computed in any other way or any other form. Principal includes such charges to which the parties may agree under paragraph (1) of this subsection. Amounts paid or contracted to be paid as either an origination fee or discount points, or both, on any loan secured by an interest in real estate shall not be considered interest and shall not be taken into consideration in the calculation of interest and shall not be subject to rebate as provided in paragraph (1) of subsection (b) of this Code section.

(b)(1) Upon acceleration of the maturity of any loan, advance of money, or forbearance to enforce the collection of any sum of money upon which interest has been precomputed, unearned interest shall be rebated to the debtor in such amount as would result in the rate of interest earned being no greater than the rate of interest established by the original contract. In the case of a loan in which the principal and the interest for the entire term of the loan are included in the face amount of the loan and the loan is to be paid back in weekly, monthly, quarterly, semiannual, or yearly installments, with the interest and principal portions of each installment determined under the pro rata method, any such rebate shall be determined on the pro rata method.

(2) Unless stipulated in the contract, there shall be no prepayment penalty.

(c) Nothing contained in this Code section shall be construed to amend or modify the provisions of Chapter 3 of this title, the 'Georgia Industrial Loan Act,' Article 1 of Chapter 1 of Title 10, the 'Retail Installment and Home Solicitation Sales Act,' Chapter 5 of this title, 'The Credit Card and Credit Card Bank Act,' Chapter 22 of Title 33, the 'Insurance Premium Finance Company Act,' Part 5 of Article 3 of Chapter 12 of Title 44, relating to pawnbrokers, and, except as provided in Code Section 7-4-3, Article 2 of Chapter 1 of Title 10, the 'Motor Vehicle Sales Finance Act.'

7-4-18

a) Any person, company, or corporation who shall reserve, charge, or take for any loan or advance of money, or forbearance to enforce the collection of any sum of money, any rate of interest greater than 5 percent per month, either directly or indirectly, by way of commission for advances, discount, exchange, or the purchase of salary or wages; by notarial or other fees; or by any contract, contrivance, or device whatsoever shall be guilty of a misdemeanor; provided, however, that regularly licensed pawnbrokers, as defined in Code Section 44-12-130, are limited in the amount of interest they may charge only by the limitations set forth in Code Section 44-12-131.

(b) This Code section shall not be construed as repealing or impairing the usury laws now existing but shall be construed as being cumulative thereof.

(c) Nothing contained in Code Section 7-4-2 or 7-4-3 shall be construed to amend or modify the provisions of this Code section.

Thank you so much for the information. I knew it would not be so simple, but could I say that generally:

if not stated in contract max. is 7% per annum simple interest

consumer loan less than $3,000 max. 16% per annum simple interest
consumer loan greater than $3,000 but less than $250,000 - any rate determined by contract
over $250,000 - determined by contract

industrial loans - other criteria

pawnbrokers - no more than 5% per month or 60% per annum

Not just pawnbrokers - that applies to anyone who lends money. DBF issued a "reminder" recently concerning the 60%APR restriction.

Is this "reminder" located on their web site? I went there and only saw a Bulletin referencing origination fees as 'prepaid interest.

Thanks again.

In this post in relation to CD lending? I found where the regulation regarding the spread was removed some time ago. But, not sure about the state? Thanks.

I finally found where I had saved the memo. It came out 7-9-02.
MEMORANDUM 101-02 (07-09)


TO: ALL EXAMINERS AND PROFESSIONAL STAFF

FROM: GEORGE A. REYNOLDS, CFE, CEM, CPA
DEPUTY COMMISSIONER FOR SUPERVISION

SUBJECT: INTEREST AND USURY

DATE: July 9, 2002


INTEREST AND USURY ISSUES

Examiners have indicated that they are increasingly noting concerns in financial institutions with interest and usury issues, particularly with the increase in overdraft programs that have been observed over the past year. The following provides some written guidance regarding interest and usury issues and examination treatment of these concerns.

What is Usury? (O.C.G.A.§7-4-1)

Section 7-4-1 defines usury as the taking or contracting to take, directly or indirectly, a sum for the use of money which is greater than the lawful interest.

I. General Bank and Credit Union Interest Provisions under Georgia Statute

a. The general provisions for rates of interest established by contract (OCGA 7-4-2) are:

 For Loans $3,000 or less – a maximum of 16 percent per annum simple interest unless the loan is made pursuant to other law ( i.e. GILA)

 For Loans greater than $3,000 – Negotiable by contract

“Interest” means a charge for the use of the money computed over the term of the contract at the rate stated in the contract. Amounts paid or contracted to be paid as either an origination fee or discount points, or both, on any loan secured by an interest in real estate shall not be considered interest and shall not be taken into consideration in the calculation or rebate of interest for the purposes of 7-4-2. For Non-real estate loans, generally, fees attributable to realistic, supported and documented processing costs are not interest (for the purposes of 7-4-1) however fees that are assessed on every loan that do not meet these criteria are interest. Please note the discussion below concerning the issue of loan administration fees in relation to calculation of the criminal usury statute.

b. Loans not subject to contract - limited to a maximum rate of 7 per cent per annum simple interest.

c. Interest rates and fees on Credit Card Accounts are contained in OCGA 7-5-4 and are normally negotiated by contract and not limited by percentage or dollar amount.


d. Other Provisions under Georgia Statutes concern Commercial Accounts, Revolving Accounts and Retail Installment Contracts, which are not typically used by banks.

e. Loans under $3,000 also may be made under the terms and provisions of the Georgia Industrial Loan Act.


II. Criminal Usury Provisions

Pursuant to OCGA 7-4-18, any person or entity that directly or indirectly takes, reserves or charges in excess of 5 per cent per month shall be in violation of the Criminal Usury statutes and shall be guilty of a misdemeanor.


III. Use of Loan Origination Fees and the Impact on Interest and Usury

Note above that 7-4-2 for loans secured by RE, makes specific reference to the treatment of Loan Administration Fees. While these fees, if properly structured and documented, may be excluded from this definition of interest, these fees have been included in the definition of interest for the purposes of calculation of the criminal usury provisions under OCGA 7-4-18, based on several legal decisions in the courts during the 1990’s. Some bankers may have been relying on old and outdated opinion letters regarding this subject and this needs to be reviewed during the examination process.


IV. Remedies for Violations of Interest and Usury Provisions

Under 7-4-10, the remedy for failure to comply with the interest provisions of 7-4-2, outlined above, is the forfeiture of all interest and fees charged. This issue is relatively clear-cut for current loans found in violation: interest and fees paid and interest and fees payable would be returned to the borrower.

The issue of loans which are no longer active is less definitive in the statute. While the above Code section indicates the remedies, there is not, unlike certain federal statutes, specific language that empowers the Department to go back a certain period of time and obtain consumer refunds for these amounts, when a violation of interest or usury provisions has occurred. We would expect a bank to assess their legal position regarding such amounts and also determine potential for exposure to class action and similar litigation and share this with the Department in writing. Refer to recommendations regarding Examination Treatment.


V. Interest Provision for State-Chartered Credit Unions

The maximum rate of interest for credit unions is established under 7-1-658 at the greater of 1.25% per month (15 per cent per annum) or such greater rates as shall be authorized for other financial institutions for such purposes. Since Federally Chartered Credit Unions are authorized to lend at rates up to 18 per cent per annum, credit unions are authorized to lend under these provisions. Loans over $3,000 would be permitted to use a rate negotiated between the credit union and the borrower. Credit Unions also are authorized to lend under the terms and provisions of the Georgia Industrial Loan Act, if they so desire.


VI. Overdraft Programs

The Department has been increasingly encountering overdraft programs in banks in an effort to boost “non-interest” income. The issue with many of these programs is whether the fee structure on these programs is in accordance with the interest and usury provisions of Georgia Statute

The most common type of program we see is where the bank establishes a program whereby customers are allowed and in some cases encouraged to write checks where an insufficient amount is available in the account, for which the bank receives the customary NSF fee of the bank. If a defacto loan contract is found to exist, it could result in these fees being considered interest. We have found no concrete and definitive legal authority that specifically addresses this issue. Often the programs do not involve a contract, in an effort to avoid designation as a loan. However, it is important that the account disclosures and marketing materials be reviewed to determine the adequacy of compliance with federal statutes such as TILA, TISA, Electronic Fund Transfer Act, ECOA, Federal Reserve Regulation O and Other regulations. Banks utilizing organized overdraft programs would be best served by having some sort of legal review of their program performed, either by bank counsel or outside counsel, including a review of compliance with both federal laws and regulations, as well as Georgia Law.

Other banks, particularly larger banks, are utilizing the credit card statutes and related provisions as a basis for structuring their overdraft loan programs. The AG has an opinion regarding the use of some of these programs, Opinion 85-32, which is attached to this document. The AG takes the position that a third party must be able to recognize that a credit transaction exists, for it to qualify as a credit card transaction. In such transactions the credit standing of the financial institution would be substituted for that of the borrower.

Programs which include other interest and fee features may be more likely to run into problems with Georgia Interest and Usury limitations. Some examples recently encountered include the following:


 A small loan program that included a loan administration fee on every loan. As discussed above, loan administration fees have been determined by recent court cases to be included in the definition of interest for the purposes of the criminal usury statute.

 A small loan program that was made based on the position that a bank can utilize pawnshop rates. The bank was utilizing an interest rate on the balance plus graduated fees, which it indicated were exempt from the criminal usury limit by virtue of using pawn provisions. It was determined that use of these provisions by a bank was not appropriate for non-pawn transactions since pawn transactions are not loans and therefore the bank was not allowed to use pawn rates under the most favored lender provisions in OCGA 7-1-292.

 A loan program which included a small daily fee on account balances. The use of a daily fee is much more difficult to defend as an arrangement that does not constitute interest. Such fees assessed on a daily basis, rapidly exceed the criminal usury statute limitation of 60% per annum.


 A loan program which the bank asserted was in the nature of a credit card program but which could not be adequately demonstrated to meet the provisions of the AG Opinion Letter 85-32 referred to above, and which exceeded the maximum interest provisions on loans less than $3,000 (16% per annum).


Possible Changes in the Department’s Current Interpretation Regarding Interest and Usury

The positions contained in this memorandum represent our interpretation of the statutory and case law guidance on this issue at this time. The Department intends to ask the Attorney General for additional guidance regarding several interest and usury issues that are unclear at this time. As additional guidance becomes available or if case law interpretations change in this area, the Department may revise this memorandum to incorporate these changes.


Examination Treatment of Apparent Interest and Usury Issues

It is recommended that examiners review any overdraft programs that are utilized by the bank to determine the fee structures used on these programs. While we encourage banks to have their legal counsel review these programs for legal compliance issues, this is not required by statute or regulation, although this can certainly reduce potential legal risk exposure. Clearly a bank may not violate the law.

If it is determined that an apparent violation of interest or usury statutes is in evidence, this should be forwarded to the main office for review, similar to what is done for violations to combined related entity debt for legal lending limit purposes. We have been addressing such violations under separate cover and typically if a violation is sustained in the review process, we ask bank management to do the following:


1) Outline the steps taken or proposed to correct those loans currently on the books and bring them into compliance with Georgia Statutes and a timetable for correction.

2) Provide the actions to be taken or proposed regarding previous violations of interest and usury statutes for loans no longer on the books, in consultation with the bank’s legal counsel.

3) Assess the impact of the plan of remediation upon the financial and operating condition of the Bank, including the potential impact upon bank earnings, capital, liquidity and sensitivity to market risk.

4) The Board of Directors and the bank’s legal counsel should review their potential exposure to additional litigation regarding this matter, including the potential for class action litigation.

This question pops up every now and then for some reason, but just to be sure the Criminal penalty for excess interst (greater than 5% per month or 60% per annum) is the simple interest rate and not the APR. Someone is telling me that the maximum APR is 60% and I'm disagreeing unless someone can explain to me otherwise.

I think I need to amend my post above. If the interest rate is 60% and there are no fees then it would be possible to have an APR of 60%; however I've seen many situations where the simple interest rate is say 8%, but due to terms and fees, etc. the APR may be over 60%. That may be a bad example, but is that saying that all loans over 60% APR are in violation of 7-4-18? I must be leaving something out. Thank you.

It is the APR. The Department of Banking and Finance published a new interpretation in the banking bulleting back in 2002 that tried to make sure we all know about this change in interpretation. You must consider the loan fees when calculating the 60% which will be your APR. This applies to commercial loans as well as consumer loans. It applies to NSF fees as well as loan products. 7-4-18 is criminal usury and does consider the loan fee as part of the interest for purposes of calculating total interest rate. Send me your e-mail and I will send you a copy of that bulletin.

Does GILA cover pawnbrokers? Who would make GILA loans? From the reading it appears that 7-4-18 does not apply to GILA loans so 7-4-18 would apply to anyone other than those who make GILA loans? Thank you

You need to get legal counsel involved in some of these questions. I only know that banks have the choice to either make GILA loans or not. 7-4-18 applies to everything - including GILA loans.

Does the 5% per month or 60% per month interest rate limit apply to title loan companies and if so, can I take legal action against them?

On a Gila loan why is it they do not have to count the exorbitant insurance charges on the loan that cost the customer more than the fees and interest combined as part of the yearly APR, Especially when they take these charges out of the customers proceeds.You would think it would be a violation of TIL ? Is anyone a pro here on Gila loans ?

Pawnbrokers or Title pawns have their own code
It starts at 44-12-138. They may charge 25% for the 1st 3 months and can only charge 12.5 after that. Georgia Title Pawns are exempt from usury due to the item is pawned and is the only collateral.

Digging this old thread back up because I'm doing loan reviews and found a couple that are raising my eyebrows.

Please tell me if I understand this correctly - for loans less than $3000, the simple interest rate must be <16% and we can charge a loan fee as long as it does not put the APR over 60%. Is that right?


ETA: Here's an Official Opinion from 2003 that makes it sound like a loan fee could be exempted from the APR calculation for usury purposes. http://dbf.georgia.gov/sites/dbf.georgia...inion2003-8.pdf

If you can justify the loan fee, it can be exempted from Usury- you have to have documentation indicating how much it costs to book that particular type of loan.

So just saying "overhead" probably isn't sufficient, huh?

wouldn't think so....... Our CFO used to do an analysis every year or so.....

I thought that was probably too much to hope for. Thanks for the help!

But see, that's what all the stink was over just a few years ago. We'd done that tedious accounting for YEARS and then they said...Nope...we changed our mind...it's still time value of money and therefore...a PPFC.

It was always a PPFC-it just didn't count toward Usury. I don't remember them changing that.

Sorry..I meant counted toward the 60% max.

Does an overdraft daily fee (fee for account remaining overdrawn) need to be included/compared to usury? I'm getting so stuck on this.

yes