Consumer Finance Insights
November 10, 2016

Supreme Court of Georgia Rules Against Payday Lenders

On October 31, 2016, the Supreme Court of Georgia issued a lengthy opinion ruling against payday lenders in two cases consolidated on appeal. The two cases (Western Sky Financial, LLC v. State of Georgia, No. S16A1011 and State of Georgia v. Western Sky Financial, LLC, No. S16X1012) involved state regulation of tribal affiliated, out-of-state payday lenders who provided loans to Georgia residents telephonically and over the internet.  On appeal, the Supreme Court of Georgia considered a number of issues including whether the state could sue lenders engaged in interstate commerce under the state’s Payday Lending Act (OCGA §§ 16-17-1 through 16-17-10); whether contracts formed in another state were subject to that law; and whether tribal sovereignty precluded the law’s enforcement.

The defendants’ first argument against Georgia’s attempted regulation was that the Payday Lending Act excluded loans made through interstate commerce. Western Sky Fin. LLC v. State of Georgia, —S.E.2d —, 2016 WL 6407256, at *2 (Ga. Oct. 31, 2016).  Although the Court agreed that a subpart of the statute expressly stated that “Payday lending involves relatively small loans and does not encompass loans that involve interstate commerce” (id. (quoting OCGA § 16-17-1(d)), it concluded that this subpart was merely a finding of fact and not a limitation on the reach of the law. Id. It concluded that if this subpart was a limitation, than the Payday Lending Act would “be virtually meaningless” because essentially all loans involve interstate commerce. Id.

They also argued that the statute was inapplicable because the loan agreements were completed in South Dakota. The Court rejected the argument that because the last act required to form the contract was completed outside of Georgia, the state’s law was inapplicable to those contracts. Id. at *4.  Instead, the Court concluded that the defendants could not skirt Georgia law simply by forming their contracts elsewhere. Id. Similarly, the Court held that the defendants could not avoid the state’s law by including a tribal law choice of law provision in their contracts. Id. at *5.

The defendants also sought to avoid liability by asserting tribal sovereignty since Western Sky’s sole member claimed to be a member of the Cheyenne River Sioux Tribe. Rejecting this argument as well, the Court also explained that tribal sovereignty did not abrogate the state’s police power, and that the state may “enforce state law for off-reservation activities.” Id. at *5.

In addition to these rulings, the Court also reversed a trial court order denying the State’s request to add two additional defendants (the sole shareholder of an affiliated payday lender as well as a separate affiliated company). Id. at 10-11.  And finally, the Court held that Georgia’s 20-year statute of limitations applicable to the enforcement of statutory rights, rather than the one-year limitation applied to usury claims, applied.

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