Chapter 3. INDUSTRIAL LOANS  

CROSS REFERENCES. --Exemption from securities-registration provisions of securities issued or guaranteed by industrial loan associations, § 10-5-8. Payday loans are illegal, § 16-17-1 et seq.
 
ADMINISTRATIVE RULES AND REGULATIONS. --Rules governing industrial loan department, Official Compilation of Rules and Regulations of State of Georgia, Rules of Comptroller General, Industrial Loan Department, Chapters 120-1-1 through 120-1-15.
 
LAW REVIEWS. --For article, "Small Loans Under Georgia Laws," see 3 Mercer L. Rev. 227 (1952). For article, "The Georgia Industrial Loan Act: An Analysis," see 7 Mercer L. Rev. 297 (1956). For article discussing the Industrial Loan Act with emphasis on defending the debtor from claims, see 24 Mercer L. Rev. 545 (1973). For article surveying 1976 to 1977 developments in application of the Industrial Loan Act, see 29 Mercer L. Rev. 41 (1977). For article surveying Georgia cases dealing with commercial law from June 1977 through May 1978, see 30 Mercer L. Rev. 15 (1978). For article discussing methods of computation of finance charges in Georgia consumer credit contracts, see 30 Mercer L. Rev. 281 (1978).
   For note discussing transfer fees in home loan assumptions in reference to the Georgia usury laws, see 9 Ga. L. Rev. 454 (1975). For note discussing significant judicial, legislative, and administrative developments under the Industrial Loan Act between 1973 and 1978, see 27 Emory L.J. 109 (1978). For note discussing debtor-creditor relations under the Georgia Industrial Loan Act, see 12 Ga. L. Rev. 814 (1978).
   For comment on Lewis v. Termplan, Inc., 124 Ga. App. 507, 184 S.E.2d 473 (1971), see 9 Ga. St. B.J. 380 (1973). For comment on Georgia Inv. Co. v. Norman, 231 Ga. 821, 204 S.E.2d 740 (1974), see 26 Mercer L. Rev. 321 (1974).
 
JUDICIAL DECISIONS
 
PURPOSE OF THE GEORGIA INDUSTRIAL LOAN ACT (SEE O.C.G.A. § 7-3-1 ET SEQ.) is to eliminate abuses arising from unregulated entities engaging in small loan business. Commercial Credit Plan, Inc. v. Parker, 152 Ga. App. 409, 263 S.E.2d 220 (1979).
   Purpose of the Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.) is to provide a source of regulated lending funds since such need existed for those who had been borrowing at usurious rates from loan sharks, street shylocks and wage-buyers. Freeman v. Decatur Loan & Fin. Corp., 140 Ga. App. 682, 231 S.E.2d 409 (1976).
 
THE GEORGIA INDUSTRIAL LOAN ACT (SEE O.C.G.A. § 7-3-1 ET SEQ.) WAS DESIGNED TO REQUIRE CREDITORS TO MAKE CERTAIN UNIFORM DISCLOSURES in consumer credit transactions in order to assure a meaningful disclosure of credit terms so that consumers will be able to compare more readily the various credit terms available to them and avoid uninformed use of credit. Grubb v. Oliver Enters., Inc., 358 F. Supp. 970 (N.D. Ga. 1972).
 
GEORGIA INDUSTRIAL LOAN ACT, O.C.G.A. § 7-3-1 ET SEQ., MUST BE STRICTLY CONSTRUED. General Fin. Corp. v. Sprouse, 577 F.2d 989 (5th Cir. 1978).
   The Industrial Loan Act, O.C.G.A. § 7-3-1 et seq., is in derogation of common law and must be strictly construed. Diggs v. Swift Loan & Fin. Co., 154 Ga. App. 389, 268 S.E.2d 433 (1980).
 
CHAPTER TO BE READ LIBERALLY AND BROADLY. --Wording and legislative history of the Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.) make clear that it is to be read liberally and broadly to prevent even the most subtle or indirect methods of assessing usurious rates. Williams v. Public Fin. Corp., 598 F.2d 349 (5th Cir. 1979).
 
THE GEORGIA INDUSTRIAL LOAN ACT (SEE O.C.G.A. § 7-3-1 ET SEQ.) MAKES CERTAIN FINANCIAL TRANSACTIONS LEGAL WHICH WOULD OTHERWISE BE USURIOUS UNDER FORMER CODE 1933, § 57-101 (SEE O.C.G.A. § 7-4-2). Lewis v. Termplan, Inc., 124 Ga. App. 507, 184 S.E.2d 473 (1971).
 
CHAPTER OPERATES UNIFORMLY AND IN SAME MANNER AS USURY STATUTE. --The Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.) operates generally upon entire class of subjects with which it deals, uniformly throughout state and in same manner generally as the usury statute. Talley v. Sun Fin. Co., 223 Ga. 419, 156 S.E.2d 55 (1967).
 
CHAPTER PREVAILS OVER UNIFORM COMMERCIAL CODE. --Georgia Industrial Loan Act, O.C.G.A § 7-3-1 et seq., is applicable to security agreements and in the event its provisions conflict with the Georgia Uniform Commercial Code, the Industrial Loan Act governs. General Fin. Corp. v. Sprouse, 577 F.2d 989 (5th Cir. 1978).
 
EFFECT OF § 7-3-29 ON JUDICIAL AND OTHER INTERPRETATIONS OF THIS CHAPTER. --O.C.G.A 7-3-29 evidences a recognition on the part of the General Assembly that O.C.G.A. Ch. 3, T. 7 is ambiguous in certain sections. It in no way discourages judicial or other valid authority from seeking interpretations of the chapter which further its purpose, despite prior inconsistent interpretations. Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981).
 
JUDICIAL CONSTRUCTION OF THE RETAIL INSTALLMENT AND HOME SOLICITATION SALES ACT, O.C.G.A. Art. 1, Ch. 1, T. 10, enacted at a different time, is weak evidence of legislative intent in enacting O.C.G.A. Ch. 3, T. 7. Ford v. Termplan, Inc., 528 F. Supp. 1016 (N.D. Ga. 1981).
 
RETAIL INSTALLMENT AND HOME SOLICITATION ACT, ART. 1, CH. 1, T. 10 AND O.C.G.A. CH. 3, T. 7 DIFFER IN PURPOSE and effect and provisions of one act are not controlling in interpretation of the other. Liberty Loan Corp. v. Childs, 140 Ga. App. 473, 231 S.E.2d 352 (1976), cert. dismissed, 239 Ga. 220, 236 S.E.2d 373 (1977).
 
ACTION UNDER TRUTH-IN-LENDING ACT DOES NOT AFFECT ATTACK UNDER THIS CHAPTER. --Statutory damages sought by defendants in federal court as a violation of Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., is a legal tort action authorized by federal law; and it is in no wise an estoppel of defendants to contend the loan contract was void under O.C.G.A. Ch. 3, T. 7. Hobbiest Fin. Corp. v. Spivey, 135 Ga. App. 353, 217 S.E.2d 613 (1975).
 
TRUTH-IN-LENDING ACT INAPPLICABLE TO LOANS VIOLATING THIS CHAPTER. --The federal Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., does apply to loans which also violate O.C.G.A. Ch. 3, T. 7. Williams v. Public Fin. Corp., 598 F.2d 349 (5th Cir. 1979).
 
VIOLATION OF CHAPTER AS AFFIRMATIVE DEFENSE. --Party asserting defense of violation of O.C.G.A. Ch. 3, T. 7 has burden of showing that defense affirmatively by record. Grier v. Employees Fin. Servs., 158 Ga. App. 813, 282 S.E.2d 342 (1981).
 
RULE OF 78'S CAN BE USED TO COMPUTE INTEREST REBATES. --O.C.G.A. Ch. 3, T. 7 authorizes the lender to use the Rule of 78's to compute interest rebates in refinancing cases and does not require lenders to compute such rebates on a pro rata basis. Varner v. Century Fin. Corp., 253 Ga. 27, 317 S.E.2d 178 (1984).
 
LOANS WHICH HAD UNDERGONE REFINANCING were not void under O.C.G.A. Ch. 3, T. 7 merely because the prepaid interest attributable to the original loans was rebated under the terms of those agreements according to the Rule of 78's, instead of by a pro rata method. Varner v. Century Fin. Co., 738 F.2d 1143 (11th Cir. 1984).
 
PENALTY FOR OMISSION IN ORIGINAL AGREEMENT. --A 1979 debt was not uncollectible because the original 1977 agreement violated O.C.G.A. Ch. 3, T. 7 by failing to provide for rebates of unearned credit insurance premiums. However, as a penalty for this violation, the loan company had to forfeit all interest and charges accrued in connection with the 1977 agreement. Varner v. Century Fin. Co., 738 F.2d 1143 (11th Cir. 1984).
 
CLAUSE RENDERING ENTIRE BALANCE DUE UPON DEFAULT IS VOID. --Contract clause that renders entire unpaid balance due and payable upon default of payment is void and unenforceable as providing for acceleration of unearned interest. Blazer Fin. Servs. v. Dukes, 141 Ga. App. 663, 234 S.E.2d 149 (1977).
 
EFFECT OF ACCELERATING DEBT ON INSURANCE COVERAGE. --In the absence of any requirement that a lender cancel credit insurance coverage upon acceleration of a debt, there is no violation of this chapter when a lender, pursuant to properly drafted loan documents and in accord with this chapter, accelerates a debt but does not refund insurance premiums on insurance coverage still in effect. Williams v. Charter Credit Co., 179 Ga. App. 721, 347 S.E.2d 635 (1986).
 
CITED in Haire v. Allied Fin. Co., 99 Ga. App. 649, 109 S.E.2d 291 (1959); Liberty Loan Corp. v. Crowder, 116 Ga. App. 280, 157 S.E.2d 52 (1967); Camilla Loan Co. v. Sheffield, 116 Ga. App. 626, 158 S.E.2d 698 (1967); Reynolds v. Service Loan & Fin. Co., 116 Ga. App. 740, 158 S.E.2d 309 (1967); Gentry v. Consol. Credit Corp., 124 Ga. App. 597, 184 S.E.2d 692 (1971); Mason v. Service Loan & Fin. Co., 128 Ga. App. 828, 198 S.E.2d 391 (1973); Roberts v. Allied Fin. Co., 129 Ga. App. 10, 198 S.E.2d 416 (1973); Lee v. G.A.C. Fin. Corp., 130 Ga. App. 44, 202 S.E.2d 221 (1973); Hinsley v. Liberty Loan Corp., 133 Ga. App. 344, 211 S.E.2d 3 (1974); Hodges v. Community Loan & Inv. Corp., 234 Ga. 427, 216 S.E.2d 274 (1975); Harris v. Avco Fin. Corp., 135 Ga. App. 267, 218 S.E.2d 83 (1975); Earwood v. Liberty Loan Corp., 136 Ga. App. 799, 222 S.E.2d 204 (1975); Mays v. Safeway Fin. Co., 139 Ga. App. 229, 228 S.E.2d 319 (1976); Perry v. Landmark Fin. Corp., 141 Ga. App. 62, 232 S.E.2d 399 (1977); Aycock v. HFC, 142 Ga. App. 207, 235 S.E.2d 578 (1977); Clark v. Transouth Fin. Corp., 142 Ga. App. 389, 236 S.E.2d 135 (1977); Bramblett v. Whitfield Fin. Co., 143 Ga. App. 853, 240 S.E.2d 230 (1977); Cooper v. Public Fin. Corp., 144 Ga. App. 572, 241 S.E.2d 839 (1978); Lowe v. Termplan, Inc., 144 Ga. App. 671, 242 S.E.2d 268 (1978); Hilley v. Finance Am. Corp., 145 Ga. App. 284, 243 S.E.2d 587 (1978); Lee v. Beneficial Fin. Co., 159 Ga. App. 205, 282 S.E.2d 770 (1981); Ricks v. Liberty Loan Corp., 146 Ga. App. 594, 247 S.E.2d 133 (1978); Carter v. Swift Loan & Fin. of Columbus, Inc., 148 Ga. App. 358, 251 S.E.2d 379 (1978); Motor Fin. Co. v. Harris, 150 Ga. App. 762, 258 S.E.2d 628 (1979); Finance Am. Corp. v. Drake, 151 Ga. App. 383, 259 S.E.2d 739 (1979); Cody v. Community Loan Corp., 606 F.2d 499 (5th Cir. 1979); Sanders v. Liberty Loan Corp., 153 Ga. App. 859, 267 S.E.2d 286 (1980); Gainesville Fin. Servs., Inc. v. McDougal, 154 Ga. App. 820, 270 S.E.2d 40 (1980); Sanders v. Liberty Loan Corp., 246 Ga. 292, 271 S.E.2d 218 (1980); Southern Disct. Co. v. Ector, 155 Ga. App. 521, 271 S.E.2d 661 (1980); Wimbush v. Fayette Fin. Co., 156 Ga. App. 500, 275 S.E.2d 99 (1980); Sanders v. Liberty Loan Corp., 156 Ga. App. 628, 276 S.E.2d 49 (1980); Williams v. Public Fin. Corp., 609 F.2d 1179 (5th Cir. 1980); Friend v. Aetna Fin. Co., 622 F.2d 1217 (5th Cir. 1980); Whitfield v. Termplan, Inc., 651 F.2d 383 (5th Cir. 1981); In re Moses, 9 Bankr. 370 (Bankr. N.D. Ga. 1981); Smith v. American Fin. Sys., 14 Bankr. 712 (Bankr. N.D. Ga. 1981); Clyde v. Liberty Loan Corp., 249 Ga. 78, 287 S.E.2d 551 (1982); Gibbs v. Jack Daniel Auto Sales, Inc., 163 Ga. App. 479, 294 S.E.2d 696 (1982); Varner v. Century Fin. Co., 720 F.2d 1228 (11th Cir. 1983); Scott v. Aetna Fin. Co., 201 Ga. App. 81, 410 S.E.2d 203 (1991).
 
LICENSE IS CONDITION PRECEDENT TO RECOVERY UPON OBLIGATION INCURRED UNDER CHAPTER. --As a condition precedent to recovery upon an obligation incurred under provisions of the Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.) it must appear that the obligee was licensed under that Act to engage in business of making loans, etc., thereunder. Bayne v. Sun Fin. Co. No. 1, 114 Ga. App. 27, 150 S.E.2d 311 (1966); Southern Disct. Co. v. Cooper, 130 Ga. App. 223, 203 S.E.2d 237 (1973).
   It is a condition precedent to recovery on a note otherwise usurious that obligee named therein was at time of execution of note duly licensed under provisions of the Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.). Hardy v. R & S Fin. Co., 116 Ga. App. 451, 157 S.E.2d 777 (1967).
   There can be no recovery upon obligation incurred under the Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.) without proof that obligee in note sued upon was duly licensed at time obligation was incurred. HFC v. Johnson, 119 Ga. App. 49, 165 S.E.2d 864 (1969); Scoggins v. Whitfield Fin. Co., 242 Ga. 416, 249 S.E.2d 222 (1978).
   It is settled that one who seeks to recover money loaned under provisions of Industrial Loan Act, O.C.G.A. § 7-3-1, must plead and prove that the person was licensed to do business under the act at time loan was made. Service Loan & Fin. Corp. v. McDaniel, 115 Ga. App. 548, 154 S.E.2d 823 (1967).
   It must appear from allegations of petition that payee in note representing transaction under the Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.) was duly licensed to operate thereunder when obligation was incurred, i.e., when note was executed. This is required in order to show that plaintiff sues upon a lawful obligation. Bayne v. Sun Fin. Co. No. 1, 114 Ga. App. 27, 150 S.E.2d 311 (1966).
 
FAILURE TO PLEAD FACT OF LICENSING IS AN AMENDABLE DEFECT. Service Loan & Fin. Corp. v. McDaniel, 115 Ga. App. 548, 154 S.E.2d 823 (1967).
   
 
QUESTION IS WHETHER CONTRACT COULD BE USED TO EXACT ILLEGAL CHARGES. --The Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.) was designed to protect debtors who are often unaware of their legal rights or complicated rules of construction. The relevant question is not simply whether a violation exists in the contract, when evaluated under general rules of contract construction, but whether the lender might be able to employ certain provisions of the contract to exact illegal charges from unsuspecting debtors. General Fin. Corp. v. Sprouse, 577 F.2d 989 (5th Cir. 1978).
 
WHERE PLAINTIFF CONTRACTED FOR COLLECTION OF UNEARNED INTEREST, WHICH VIOLATES THE OBLIGATION IS VOID. Guyton v. Martin Fin. Corp., 135 Ga. App. 62, 217 S.E.2d 390 (1975).
 
WHERE LOAN IS VOID, LENDER FORFEITS PRINCIPAL, INTEREST, AND OTHER CHARGES. --Lender forfeits not only interest and other charges, but forfeits principal as well where loan is found to be null and void under the Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.). Hobbiest Fin. Corp. v. Spivey, 135 Ga. App. 353, 217 S.E.2d 613 (1975).
 
ACTION FOR MONEY HAD AND RECEIVED NOT SUSTAINABLE where predicated upon contract void under Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.). Anderson v. G.A.C. Fin. Corp., 135 Ga. App. 116, 217 S.E.2d 605 (1975).
 
REAFFIRMANCE OF OBLIGATION VOID UNDER THE GEORGIA INDUSTRIAL LOAN ACT (SEE O.C.G.A. § 7-3-1 ET SEQ.) IS ALSO VOID. Pinkett v. Credithrift of Am., Inc., 430 F. Supp. 113 (N.D. Ga. 1977).
 
A LENDER CANNOT RECOVER MONEY LENT ON REFINANCING OF LOAN WHICH VIOLATES THE GEORGIA INDUSTRIAL LOAN ACT (SEE O.C.G.A. § 7-3-1 ET SEQ.). Williams v. Public Fin. Corp., 598 F.2d 349 (5th Cir. 1979).
 
PLAINTIFF MUST SHOW CHAPTER APPLICABLE. --Plaintiff lender bears burden of establishing that plaintiff comes within terms of the Georgia Industrial Loan Act (see O.C.G.A. § 7-3-1 et seq.). Gray v. Quality Fin. Co., 130 Ga. App. 762, 204 S.E.2d 483 (1974).
 
ADMINISTRATIVE INTERPRETATION OF CHAPTER IS ENTITLED TO CONSIDERATION BY COURT. --Administrative interpretation of this chapter given by Georgia Industrial Loan Commissioner is entitled to consideration in determination by court of manner in which fees and charges allowed by law should be calculated. Belton v. Columbus Fin. & Thrift Co., 127 Ga. App. 770, 195 S.E.2d 195 (1972); FinanceAmerica Corp. v. Drake, 154 Ga. App. 811, 270 S.E.2d 449 (1980).
 
ADMINISTRATIVE RULINGS WILL BE ADOPTED WHEN THEY CONFORM TO MEANING WHICH COURT DEEMS PROPER. Belton v. Columbus Fin. & Thrift Co., 127 Ga. App. 770, 195 S.E.2d 195 (1972).
 
REMEDY SAME FOR ILLEGAL LOANS AND LOANS BASED ON ILLEGAL CONSIDERATION. --Under Georgia law, public policy dictates that loans based partly on illegal consideration are void and money paid pursuant to such contracts need not be repaid, and since this is the same remedy as provided in this chapter for loans which violate it, the distinction between illegal loans and loans based in part on illegal consideration is of no importance. Williams v. Public Fin. Corp., 598 F.2d 349 (5th Cir. 1979).
 
OPINIONS OF THE ATTORNEY GENERAL
 
ONE WHO LENDS MONEY ON WAGES AND SALARIES IS SUBJECT TO PROVISIONS OF THE GEORGIA INDUSTRIAL LOAN ACT (SEE O.C.G.A. § 7-3-1 ET SEQ.). 1954-56 Op. Att'y Gen. p. 385.
 
LENDERS NOT SUBJECT TO LICENSE REQUIREMENT. --A person not engaged in business of making loans, but who makes occasional loans in amounts less than $2,500.00 (now $3,000.00) repayable in monthly, quarterly or annual installments, may charge interest at 6 percent (now 8 percent) per annum for entire period of loan and take security therefor, and is not required to obtain a license under this chapter. 1954-56 Op. Att'y Gen. p. 392.
 
FEDERAL SAVINGS AND LOAN ASSOCIATIONS ARE EXEMPT FROM CHAPTER. --Consumer loans for amounts less than $3,000.00, with interest charged in excess of 9 percent simple interest, are governed by this chapter, but this chapter grants specific exemptions from its provisions to "banks, trust companies, real estate loan or mortgage companies, federal and Georgia building and loan associations" under former Code 1933, §§ 25-221 and 25-318 (see O.C.G.A. § 7-3-6). Although federal savings and loan associations are not specifically named as such, they are included in the list of exemptions under that section, and therefore, wholly owned subsidiaries of federal savings and loan associations, created pursuant to federal statute and regulation, are not required to obtain a license under this chapter in order to make loans of less than $3,000.00 at interest rates permitted by Georgia usury statutes. 1978 Op. Att'y Gen. No. 78-12.
 
UNAUTHORIZED TRANSACTIONS. --The Georgia Industrial Loan Act, O.C.G.A. § 7-3-1 et seq., and the rules and regulations promulgated thereunder do not allow Industrial Loan Act licensees to transact noncredit insurance through employees or otherwise. 1984 Op. Att'y Gen. No. 84-60.
 
FORMER CODE 1933, §§ 25-211 AND 25-310 (SEE O.C.G.A. § 7-3-22) EMPOWERS COMMISSIONER TO INVESTIGATE LOANS AND BUSINESS OF ANY PERSON VIOLATING THE GEORGIA INDUSTRIAL LOAN ACT (SEE O.C.G.A. § 7-3-1 ET SEQ.). 1948-49 Op. Att'y Gen. p. 15.
 
INDUSTRIAL LOAN LICENSED EMPLOYEE MAY CONDUCT THE BUSINESS OF INSURANCE provided that the person is duly licensed as an insurance agent and provided that the customer is not misled into thinking that the customer's ability to procure a loan is contingent upon the customer's agreement to purchase this insurance or otherwise to transact business in the industrial loan office. 1984 Op. Att'y Gen. No. U84-54.
 
RESEARCH REFERENCES
 
Am. Jur. Proof of Facts. --Violation of the Truth-In-Lending Act and Regulation Z, 73 POF3d 275.
   Class Action for Failure to Disclose under the Truth-In-Lending Act and Regulation Z, 76 POF3d 193.
 
ALR. --Constitutionality of statutes regulating the business of making small loans, 69 ALR 581; 125 ALR 743; 149 ALR 1424.
   Construction and application of provisions of small loan acts as regards maximum amount of loan, 99 ALR 923.
   Usury as affected by acceleration clause, 66 ALR3d 650.