After decades of virtual inaction, the Georgia General Assembly passed two laws in three years targeting unscrupulous lenders.

But one law, which reined in the mortgage lending industry, was weakened a year later. It took an act of war to get through the second law: last year's crackdown on payday lenders.

(ENLARGE)
Georgia's weakened mortgage law 'doesn't do that much' for consumers, says Attorney General Thurbert Baker.
EMAIL THIS PRINT THIS MOST POPULAR

The 2002 Georgia Fair Lending Act, pushed through by then-Gov. Roy Barnes, gave the state's consumers the toughest protections in the country against predatory mortgage lending practices.

The act penalized lenders and brokers who strip homeowners of their equity through exorbitant interest rates and fees. The bill passed despite opposition from powerful banks and financial institutions, which could have been held liable for buying mortgages deemed to be predatory.

"That is the toughest battle I ever fought — including the flag," said Barnes, referring to his successful effort to downplay the Confederate battle emblem on Georgia's flag.

In 2003, after Barnes' loss for re-election, legislators rewrote the law, saying it had jeopardized the state's mortgage-lending industry. They repealed many of the restrictions placed on lenders.

"Literally, we have a statute . . . that doesn't do that much," said Georgia Attorney General Thurbert Baker. Its provisions, he said, no longer apply to banks or their subsidiaries.

Targeting lenders a second time, the 2004 Legislature passed one of the nation's toughest laws against payday lenders, who advance loans to borrowers promising to make good with their next paychecks.

In practice, borrowers often rolled over loans for weeks at a time, triggering fees and charges that could push the effective annual interest rate beyond 1,000 percent.

The Legislature dramatically increased civil and criminal penalties against anyone offering a payday loan. It also handed borrowers a powerful legal tool against payday lenders — the right to sue as a group, through a class action.

In contrast, state law expressly prohibits borrowers from filing class action suits against licensed small-loan companies.

The payday industry aggressively fought last year's tough legislation and hired some of the highest-paid lobbyists in Georgia.

This go-round, however, timing was everything.

With the country at war, military base commanders implored legislators and Gov. Sonny Perdue to go after payday lenders, testifying that soldiers can't concentrate on duties abroad while their families are drowning in debt at home.

— Staff writer Rhonda Cook contributed to this article.