The colony of Georgia was chartered 273 years ago as a haven for people who had been imprisoned for their debts.

Today, Georgia is an unforgiving state for people who owe money, perhaps the least forgiving in the nation. It condones lending practices — in home mortgages, small loans and other types of consumer credit — that most of the country finds unconscionable.

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Loan approvals — at an initial rate of 300 percent a year — come fast at Atlanta Title Loans on Tara Boulevard.
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The place envisioned by James Oglethorpe as a debtors' colony has become a creditors' paradise.

In a broad examination by The Atlanta Journal-Constitution of lending laws and credit practices, Georgia consistently stood out for its harsh treatment of borrowers and indulgent handling of lenders.

Practices permitted in Georgia carry a human toll: escalating numbers of Georgians in financial ruin. Of the 100 counties nationally with the highest rates of personal bankruptcy filings, 45 are in Georgia.

Among the AJC's findings:

• Only two other states allow lenders to foreclose on a house as fast as Georgia does. Once a borrower falls behind and a lender initiates a foreclosure in Georgia, a house can be sold on the courthouse steps in as few as 37 days.

• Lenders that make loans backed by car titles can charge an annual percentage rate of 300 percent — five times the state's legal limit for most other consumer loans. Unlike most of the 23 other states that allow this kind of lending, Georgia lets title pawn lenders pocket the entire proceeds from the sale of cars they repossess, over and above what borrowers owe.

• Georgia is one of the most expensive places in the country to borrow a little bit of money. State law regulating loans of up to $3,000 allows lenders to add a slew of fees and insurance premiums that routinely drive the effective cost of small loans above 100 percent annual interest.

The way Georgia treats borrowers underscores the stark imbalance in the state's laws governing virtually all types of consumer loans. "We've got a lot of work to do," said Attorney General Thurbert Baker.

"The true test for a legislative body is to strike a good balance between attracting and retaining good businesses and making sure consumers are protected," Baker said. "We are not where we ought to be in Georgia."

Why does Georgia do so much to boost the profits of lenders and so little to safeguard the borrowing public?

About one in seven legislators is involved in the lending business, one of the state's most politically connected. Bankers and other creditors spend big money persuading lawmakers to adopt their points of view. They typically succeed.

"There is an old saying that 'politics is politics and the milk of politics is money,' " said Don Cheeks, former chairman of the Senate Banking and Financial Institutions Committee. "I hate to say that you are influencing the politicians with money, but you are."

The Augusta Republican used the clout he amassed during more than 30 years in the General Assembly to push through last year's tough crackdown on payday lenders — an anomaly in the Legislature.

Another recent piece of legislation offering protection to Georgia borrowers — the 2002 law targeting unscrupulous mortgage lenders — survived less than a year before lawmakers substantially weakened it.

Over the years, lawmakers and lenders alike have argued that the public, as well as the state's economy, is best served by making credit widely available. They say restrictive terms and high interest rates make it more likely that lenders will take risks, making loans to people with few assets or blemished credit.

But there is a price for that policy: the state's high bankruptcy rate.

"It's not good for business when you entice somebody to get in over their head," said state Sen. Ralph Hudgens (R-Comer), chairman of the Senate's Insurance and Labor Committee, who supports wide access to credit but with some limits. "What they're ultimately going to end up doing is bankrupting. And that costs everybody."

Lenders who lose money when customers seek bankruptcy protection either see lower profits or pass their losses on to other borrowers.

Georgians who borrow at triple-digit interest rates have little money left over for other purchases, even necessities, depriving the economy of their buying power.

And through public assistance programs, Georgia taxpayers can end up supporting families who go broke and become trapped in an endless cycle of debt.

"We are all interdependent — and we are interdependent economically," said former Gov. Roy Barnes, who founded a consumer law practice after his 2002 defeat for re-election. "We all bear the costs born of bankruptcy, by the things that come out of financial desperation."

Barnes, a Democrat who served 22 years in the General Assembly before he was elected governor, said that point typically is lost on lawmakers who put the interests of powerful lenders ahead of their financially strapped constituents.

"It is a particularly bitter pill, especially in Georgia, where we started off as a refuge for debtors," Barnes said. "It is one of the great historical ironies."