CFSA Says: Various Add-on Fees, Charges, Credit Insurance Make GILA Loan Costs Higher Than Payday Advance

Business Wire, Feb 11, 2004

Business Editors

ATLANTA--(BUSINESS WIRE)--Feb. 11, 2004

An analysis of two loans made to consumers by companies that are members of the Georgia Industrial Loan Association (GILA) shows that after various fees and charges, and auto, credit and life insurance were added on, the loans cost the borrowers much more than a cash advance from a reputable payday lending firm.

The Community Financial Services Association of America (CFSA) says an analysis reviewed by the House Banks and Banking Committee of two typical GILA loans - one from Friendly Financial Services Inc. in Valdosta and the other one from Modern Finance and Loan Company of Augusta - determined that service fees and various insurance policies sold to the customer at the two GILA stores equaled an average of almost 65 percent of the loan value.

By contrast, under legislation offered by State Rep. Earl Ehrhart (R-Powder Springs) designed to regulate the payday advance industry and protect consumers, a payday advance of $100 from a CFSA member store will carry a one-time fee of $15 and eight cents - only 15 percent of the loan value.

"The powerful GILA lobby wants to pass Senate Bill 157 and drive reputable payday lenders out of the state so GILA can have a monopoly," said Steve Benjamin, legal counsel for CFSA. "But what the analysis shows is that if GILA stores are the only game in town, consumers will be gouged, with nowhere else to go."

Benjamin said the study of the two GILA loans showed the following:

At the Valdosta GILA loan store, the customer received a loan of $301.66 and then was obligated for $522, or almost 74 percent more, which included:

-- $25.20 in initial interest

-- $40 'loan' fee

-- $18 maintenance fee ($3/month for six months)

-- $10 non-file/recording insurance

-- $2.12 in credit life insurance

-- $25.70 in credit accident and health insurance

-- $27 auto insurance

-- $14 Delta life insurance

-- $40 Continental Car Club

At the Augusta GILA loan office, an analysis of a loan taken out there showed that the customer was given $155.39, and ended up with an obligation of $240, or 55 percent more than the loan he received. The types of add-on charges in Augusta were similar to the costs for the loan from the Valdosta store, except there was no auto insurance required.

"With all of those strange fees and insurance things tacked on, consumers just don't know what they are getting into," said Benjamin. "With a reputable and regulated payday advance, it's simple, easy and it's all up front."

State Rep. Tyrone Brooks (D-Atlanta) said it was clear to him that reputable lenders - payday advance firms or small finance companies that offer real consumer protections - both have a place in Georgia. "We need regulation, not extermination. Regardless of what exists, we must have consumer protection through fair regulation of the industry," Brooks said. "Consumers need options and choices. I don't believe that the proposed legislation moving through the General Assembly accomplishes that."