Do Georgia payday lenders need an Industrial Loan Act license, even when they dress up the cash advance as something else like a catalog coupon sale or a purchase-and-leaseback transaction?

Plain-English summary

The Industrial Loan Commissioner asked the AG two questions about payday lending in Georgia. First, do lenders making short-term cash advances of $3,000 or less need an Industrial Loan Act license? Second, do they still need a license when they wrap the transaction in some other form (a catalog-coupon sale, a purchase-and-leaseback, a "membership" or "discount club" structure)? The AG said yes to both. The Industrial Loan Act, codified at O.C.G.A. §§ 7-3-1 through 7-3-29, defines a "loan" as "any advance of money in an amount of $3,000 or less under a contract requiring repayment." Payday loans squarely fit that definition: lenders advance cash, the borrower's check sits with the lender as security, and the borrower must repay principal plus a fee within a short window. The Act requires a license under O.C.G.A. § 7-3-4 unless the lender qualifies for an exemption in § 7-3-6. Token disguises do not change the analysis. Georgia courts have consistently looked through sham transactions to find the substance, and a long line of case law (going back to Pope v. Marshall in 1887) holds that "no disguise of language can avail for covering up usury."

Currency note

This opinion was issued in 2002. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical context

The Industrial Loan Act was enacted in 1955 to bring small-loan lenders under state regulation and curb the abuses that unregulated small-loan businesses had been inflicting on Georgia consumers (Marshall v. Fulton Nat'l Bank, 1978). The Act has a tight regulatory frame: licensure under § 7-3-4 (unless exempt under § 7-3-6), interest capped at 10% per annum of the face amount of the contract under § 7-3-14(1), strict limits on permitted loan fees and late charges, and a categorical bar on any other charges under § 7-3-15.

Payday lending arose in the late 1990s as an end-run around small-loan regulation in many states. The typical structure: lender advances $500 or less, borrower writes a postdated check for the principal plus a fee (commonly 20-30%, computing to APRs of 520-780% on a two-week advance), lender holds the check until payday, and the borrower either pays cash to redeem the check, lets the check go through, or pays a "rollover" fee to extend.

By 2002, courts in multiple jurisdictions had held that payday loans were loans subject to small-loan regulation and usury law, despite various contortions. Cashback Catalog Sales (S.D. Ga. 2000), Hamilton (E.D. Ky. 1997), Turner v. E-Z Check Cashing (M.D. Tenn. 1999), Greenberg (Va. 1998), White v. Check Holders, Inc. (Ky. 1999), and Livingston v. Fast Cash USA, Inc. (Ind. 2001) all reached the same conclusion. Federal Reserve Board Reg Z staff commentary at 12 C.F.R. § 226.2(a)(14)(2) explicitly recognized payday loans as consumer credit.

Some Georgia payday lenders had tried to dress their transactions in unusual forms to escape the Act. The opinion catalogs the variants: storage fees (rejected in Watson v. State, 1988), gift certificates or catalog coupons (Cashback Catalog Sales, Greenberg), membership or benefit clubs, discount coupons for title loans, and sham purchase-and-leaseback structures. The common pattern: cash advance plus token consideration, with the lender's "fee" labeled as payment for the token consideration rather than as interest on the cash advance.

The AG read all this through Georgia's long doctrinal tradition of looking through usurious shams. The 1887 Georgia Supreme Court decision Pope v. Marshall set the tone: "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 . . . is altogether erroneous. The law intends that a search for usury shall penetrate to the substance." That same principle guided the AG: if the substance is a money advance plus a fee for the use of money, the transaction is a loan under the Industrial Loan Act, regardless of the form.

The AG laid out the operational test: the transaction is a loan if (a) money is advanced under an agreement that it be repaid within a specified time, and (b) the borrower's intent in entering the transaction was to obtain the use of money rather than to purchase the token consideration. The mere fact that the value of the token consideration plus cash advanced equals the price paid by the customer does not prove the transaction was not a loan (Cashback Catalog Sales).

The bottom line: unlicensed payday lending in Georgia (without § 7-3-6 exemption) was unlawful in 2002, regardless of disguises. Even licensed industrial lenders were limited to the Act's interest and fee caps, which essentially priced out the high-fee payday model.

For payday lenders at the time

Operating in Georgia required either an Industrial Loan Act license (and compliance with the Act's strict fee limits, which made traditional payday-loan economics untenable) or qualification for an exemption under § 7-3-6. Sham structures were not a workaround.

For consumers at the time

Payday loans made by unlicensed lenders were illegal under Georgia law. Borrowers could potentially raise this defense to repayment claims and might have remedies for fees paid on void or usurious loans.

For the Industrial Loan Commissioner at the time

The opinion supplied a clear enforcement framework. Payday lenders without licenses were subject to enforcement, regardless of how they structured their transactions.

For consumer-protection attorneys at the time

The opinion, paired with the federal court decisions in Cashback, Hamilton, and the others, gave a strong basis for challenging payday loan structures in Georgia. The "look through to substance" doctrine from Pope v. Marshall was the doctrinal anchor.

Common questions

Q: What dollar threshold did the Industrial Loan Act cover?
A: Loans of $3,000 or less. Payday loans typically run $500 or less, well within the Act's coverage.

Q: What was the Act's interest cap?
A: An industrial lender could charge interest "at a rate not to exceed 10 percent per annum of the face amount of the contract." Loan fees and late charges were permitted but strictly limited under § 7-3-14. No additional charges of any kind were allowed under § 7-3-15. This made traditional high-fee payday loan economics impossible under a license.

Q: Could a lender escape the Act by structuring the deal as a sale of a coupon book with a "free" cash advance?
A: No. Georgia courts going back to 1887 have looked through usurious sham structures. The AG applied the same principle: if the substance is a money advance with a fee for use of money, it is a loan under the Act.

Q: What about lenders exempt under § 7-3-6?
A: Banks and certain other regulated entities are exempt from the Act's licensing requirement. The AG opinion does not catalog the exempt categories but notes the exemption's existence. Payday lenders themselves typically did not qualify for any § 7-3-6 exemption.

Background and statutory framework

The Industrial Loan Act is Georgia's small-loan licensing law. It requires licensure for anyone making loans of $3,000 or less. The Act's purpose, recognized in Marshall v. Fulton Nat'l Bank (1978), was "curbing abuse by unregulated entities engaged in the making of small loans." The licensing structure includes character-and-fitness review, bonding, and ongoing regulatory oversight by the Industrial Loan Commissioner.

The interest and fee structure under §§ 7-3-14 and 7-3-15 is restrictive by design. The 10% per annum interest cap, plus tightly limited loan fees and late charges, prevented the kind of high-fee small-loan abuses the Act was designed to curb. Payday lending economics (effective APRs in the hundreds of percent) cannot operate within those limits, which is why payday lenders often operated unlicensed or used sham structures.

The doctrinal fight over disguised usury has a long Georgia tradition. Pope v. Marshall (1887), Tribble v. State (1954), Jackson v. Commercial Credit Corp (1954), Bank of Lumpkin v. Farmers State Bank (1926), Williams v. Powell (1996), and Young v. First Nat'l Bank (1918) all reflect the principle that courts will look through disguises to find loans. Gunnels v. Atlanta Bar Ass'n (1940) and the older "wage buying" or "salary buying" cases reflect that payday-style lending is not new; the modern variant just substitutes the borrower's check for the borrower's wage assignment.

Citations and references

Statutes:
- O.C.G.A. §§ 7-3-1 through 7-3-29 (Georgia Industrial Loan Act)
- O.C.G.A. § 7-3-3(4) (loan defined)
- O.C.G.A. § 7-3-6 (exemptions)
- O.C.G.A. §§ 7-3-14, 7-3-15 (interest, fees, no additional charges)
- 12 C.F.R. § 226.2(a)(14)(2) (Reg Z, payday loans as consumer credit)

Cases (selected):
- Marshall v. Fulton Nat'l Bank, 145 Ga. App. 190 (1978) (Act's purpose)
- Pope v. Marshall, 78 Ga. 635 (1887) (look through to substance)
- Cashback Catalog Coupon Sales, Inc. v. Price, 102 F. Supp. 2d 1375 (S.D. Ga. 2000)
- Greenberg v. Commonwealth, 499 S.E.2d 266 (Va. 1998)
- White v. Check Holders, Inc., 996 S.W.2d 496 (Ky. 1999)
- Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572 (Ind. 2001)

Source

• Landing page: https://law.georgia.gov/opinions/2002-3

Original opinion text

You have asked my opinion whether a license under the Georgia Industrial Loan Act, O.C.G.A. §§ 7-3-1 through 7-3-29 (hereinafter "the Act") is required in order to offer short-term cash advances (commonly called "payday loans") of $3000 or less. In addition, you have asked whether such cash advances are governed by the Act when offered in connection with catalog coupon sales, purchase-leaseback transactions, or similar consideration. It is my opinion that an industrial loan license is required to make "payday loans" of $3000 or less, unless the lender is exempt under O.C.G.A. § 7-3-6, and that "payday loans" are subject to the Act notwithstanding the lender's use of token consideration such as catalog coupons or purchase-leaseback arrangements. The Payday Loan It is my understanding that the typical "payday loan" transaction involves an advance to the borrower of $500 or less which is due to be repaid within a short period of time, usually two weeks. The borrower gives a check to the lender in the amount of the advance, plus an additional amount representing the lender's fee. The check is held by the lender until the advance is due to be repaid. At that time, one of three things will happen: the lender will negotiate the check, the borrower will redeem the check with cash, or the borrower will pay a fee for the privilege of extending the due date of the advance for another two weeks (referred to as a renewal or "rollover"). Payday lenders typically charge fees of between 20% and 30% for a two-week advance. Such fees compute to an annual percentage rate of 520% to 780%. The character of these transactions is that of a loan, with the lender's fee representing consideration for the use of money over time. It is also my understanding that many lenders have developed schemes intended to disguise the true character of the payday loan transaction. These schemes typically introduce a token consideration into the transaction in order to create the appearance that the lender's fee is paid in return for the token consideration rather than for the use of money over time. Recent examples of transactions employing such token considerations include storage fees, Watson v. State, 235 Ga. App. 381 (1988); gift certificates or catalog coupons, Cashback Catalog Coupon Sales, Inc. v. Price, 102 F. Supp. 2d 1375 (S.D. Ga. 2000), Greenberg v. Commonwealth, 499 S.E.2d 266, 271 (Va. 1998); memberships or benefit clubs; discount coupons for title loans; or the purchase and leaseback of a consumer item owned by the borrower. The salient features of the "payday loan" transaction, however, remain the same: the lender advances money to the borrower, the borrower must repay the principal amount to the lender within a specified time period, the borrower's check is held by the lender pending repayment, and the lender receives a fee in addition to the repayment of the principal. Analysis The practice of making "payday loans" is not a new one. It is described in older cases as "wage buying" or "salary buying." See, e.g., Gunnels v. Atlanta Bar Ass'n, 191 Ga. 366 (1940); Hinton v. Mack Publ'g Co., 41 Ga. App. 823 (1930); Public Fin. Corp. v. Londeree, 106 S.E.2d 760, 767 (Va. 1959). It is the use of personal checks as security for the loan that marks the modern variant of this old practice. Payday loans have been recognized by many courts, in Georgia and elsewhere, as a pretext for usury. Cashback Catalog Sales, Inc. v. Price, 102 F. Supp. 2d 1375 (S.D. Ga. 2000); Hamilton v. York, 987 F. Supp. 953 (E.D. Ky. 1997); Turner v. E-Z Check Cashing, 35 F. Supp. 2d 1042 (M.D. Tenn. 1999); Greenberg v. Commonwealth, 499 S.E.2d 266 (Va. 1998); White v. Check Holders, Inc., 996 S.W.2d 496 (Ky. 1999); Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572 (Ind. 2001). The Act was enacted in 1955 for the purpose of curbing abuse by unregulated entities engaged in the making of small loans. Marshall v. Fulton Nat'l Bank, 145 Ga. App. 190 (1978). The Act defines a "loan" as "any advance of money in an amount of $3000 or less under a contract requiring repayment and any and all renewals or refinancing thereof or any part thereof." O.C.G.A. § 7-3-3(4). Unless exempted under O.C.G.A. § 7-3-6, no person is permitted to make a loan of $3000 or less without first obtaining a license from the Industrial Loan Commissioner. O.C.G.A. § 7-3-4. An industrial lender may "charge, contract for, receive and collect interest at a rate not to exceed 10 percent per annum of the face amount of the contract." O.C.G.A. § 7-3-14(1) (Supp. 2001). Loan fees and late charges are permitted but are strictly limited. O.C.G.A. § 7-3-14. No additional amounts may be charged, contracted for, or collected in connection with an industrial loan. O.C.G.A. § 7-3-15. See also Op. Att'y Gen. No. 2000-1 (Ind. 2000) (payday lender cannot avoid statutory fee limitations by referring to charges as "service fees"). The facts of the typical "payday loan" transaction as described above clearly fall within the scope of the Act. By advancing an amount of money equal to or less than $3000 to the customer under an agreement that it be repaid, the merchant has made a "loan" within the definition set forth in O.C.G.A. § 7-3-3(4). Several courts have recognized that the act of advancing cash in return for the customer's check, with an understanding that the check would not be negotiated for a specified period of time, is a "forbearance of money" and an extension of credit. Cashback Catalog Sales, Inc., 102 F. Supp. 2d 1375, 1379 (S.D. Ga. 2000); Turner v. E-Z Check Cashing, 35 F. Supp. 2d at 1047-48; Miller v. HLT Check Exchange, 215 B.R. 970, 974 (E.D. Ky. 1997) ("If this is not an extension of credit, this Court finds is hard to imagine any transaction that is."); Op. Att'y Gen. No. 00-26 (Fla. 2000).1 Therefore, one who makes a "payday loan" in an amount of $3000 or less must conform to the requirements of the Act, including the requirement of a license from the Industrial Loan Commissioner, unless exempted under O.C.G.A. § 7-3-6. As to the second part of your question, I note that lenders have a long history of disguising usurious transactions for the purpose of avoiding the strictures of the law. The courts of this state have long shown a willingness to disregard the form of a usurious transaction in order to reveal its true character as a loan. As the Georgia Supreme Court has stated: Whether 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 (1887); Tribble v. State, 89 Ga. App. 593, 596-97 (1954); Jackson v. Commercial Credit Corp, 90 Ga. App. 352, 355 (1954). The courts will "critically inspect and analyze" the substance of a transaction and in so doing "the name by which the transaction is denominated is altogether immaterial". Tribble v. State, 89 Ga. App. at 596; Bank of Lumpkin v. Farmers State Bank, 161 Ga. 801 (1926). "[A]ny contrivance to evade the usury laws and enable the lender to get more than legal interest will render the transaction usurious, and the courts will look to the actual nature of the transaction and not to the form the parties have given it." Williams v. Powell, 214 Ga. App. 216, 219 (1996); Young v. First Nat'l Bank, 22 Ga. App. 58, 65-66 (1918); Gunnels v. Atlanta Bar Ass'n, 191 Ga. at 381. "'[I]t is the policy of the laws of this State to inhibit the taking of usury under every and any pretense or contrivance whatsoever. . . .'" West v. Dorsey, 248 Ga. 790, 792 (1982) (quoting McGehee v. Petree, 165 Ga. 492 (1927)); Troutman v. Barnett, 9 Ga. 30, 35 (1850). Some of the guises commonly used by payday lenders to mask their transactions have been employed by usurers in other contexts, and have long since been discredited by the courts. "The practice of requiring a 'tie-in' sale of insurance or some other commodity which the borrower does not need or desire as a condition precedent to a loan has frequently been held usurious." Tribble v. State, 89 Ga. App. at 597. Cases involving the alleged sale of "coupons" to disguise interest include Cash Service Co. v. Ward, 192 S.E. 344 (W.Va. 1937); Bushman v. Holmgram, 81 S.W.2d 177 (Tex. App. 1935); Glover v. Bushman, 104 S.W.2d 66 (Tex. App. 1937); and White v. Anderson, 147 S.W. 1122 (Mo. App. 1912). Cases involving the use of a sham "purchase and buyback" to disguise interest include Pope v. Marshall, 78 Ga. 635 (1887); Browner v. District of Columbia, 549 A.2d 1107 (D.C. App. 1988); Kuykendall v. Malernee, 516 P.2d 558 (Okla. App. 1973); Reitze v. Humphries, 125 P. 518 (Colo. 1912); Kjar v. Brimley, 497 P.2d 23, 25 (Utah 1972); and Bantuelle v. Williams, 667 S.W.2d 810 (Tex. App. 1983). It is necessary to ascertain the true intent of the parties in each such transaction in order to determine if it is in fact a loan. The mere fact that the value of the token consideration and cash advanced by the merchant is equal to the price paid by the customer does not necessarily prove that the transaction was not a loan. Cashback Catalog Sales, Inc. v. Price, 102 F. Supp. 2d at 1379. If the substance of the transaction is the advance of money in return for a fee, then the transaction should be considered a loan and subject to the terms of the Act. It is my opinion that the transaction should be considered a loan if money is advanced pursuant to an agreement or understanding that it be repaid within a specified period of time, and the borrower's intent in entering into the transaction is to obtain the use of money rather than to purchase the token consideration. Conclusion Therefore, it is my official opinion that a "payday loan" is within the definition of a "loan" for purposes of the Industrial Loan Act and that the maker of a "payday loan" remains subject to the Act notwithstanding the use of a guise or the issuance of a token consideration. Unless the lender is exempt under O.C.G.A. § 7-3-6, the making of payday loans as described above by an unlicensed lender is a violation of the Act. Prepared by: Sidney R. Barrett, Jr. Assistant Attorney General 1 The Board of Governors of the Federal Reserve System, in the official staff commentary to Regulation Z ("Truth in Lending"), specifically recognizes payday loans to be consumer credit transactions. 12 C.F.R. § 226.2(a)(14)(2) (Supp. I 2001).