Loans news :
Insurance Commissioner John Oxendine has some advice for Georgians who come up short a few hundred bucks.
Instead of reaching for a credit card - which can run "20-something percent" - Oxendine recommends one of the state's small-loan companies. Oxendine regulates these old-timey storefront lenders, and he's a fan.
"I think it is the best deal in town," the insurance commissioner said.In fact, the details of 1 million small loans made annually in Georgia show that the deals aren't nearly as great as Oxendine suggests.
With interest, fees and insurance charges factored in, the effective annual cost of borrowing a few hundred dollars from a small-loan company is often greater than 100 percent.Many states call that loan-sharking. But Georgia has allowed that kind of lending for half a century through one of the most complicated lending laws imaginable. The law makes Georgia one of the most expensive places in the country to borrow a little bit of money.
A detailed examination by The Atlanta Journal-Constitution of Georgia's small-loan companies found:
. Georgia allows higher finance charges for loans of $1,000 or less than any other regulated state except South Carolina.
. The average small loan in Georgia was packaged with 3.4 insurance policies in 2003. Consumer advocates criticize the insurance, which typically pays off loans if borrowers die or become disabled, as excessive or unnecessary.
. Prices on insurance policies sold with small loans are higher than is fair to consumers, according to national guidelines. The result: The state's small-loan customers paid an estimated $65 million too much for insurance in 2003, statistics analyzed by the AJC show.
. Two in three small loans in Georgia were sold with an expensive type of disability insurance that 48 states do not allow.
J.C. Hobby and his wife, Georgia, went to a small-loan company two years ago when they couldn't meet their bills. "It was either that or go to my mother," said
J.C. Hobby. "I hated to go to my mother." The Coweta County couple got $700 from McIntosh Finance in Senoia, enough to keep the telephone and the lights on.
But they got something else they didn't expect: five insurance policies and a membership in a car club that provides emergency road service.McIntosh charged the Hobbys $263 for insurance and the car club, plus $182 for finance charges. The Hobbys' loan contract discloses an annual interest rate of 39 percent. But, if all the add-ons were considered, the effective annual rate would exceed 130 percent.
Their $700 loan ended up with a payoff of more than $1,100.
Gregory Crook, an executive with family-owned McIntosh Finance, declined to comment on the Hobbys' loan or the company's sales of insurance products.J.C. Hobby, 55, said he knew the loan included insurance charges. But he said he thought he had purchased only a policy that would cover the debt if something happened to the car he put up as collateral. Hobby learned he had bought other policies and joined the car club only after a reporter read his loan contract and told him.
"Why would I want all that?" he asked.
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