Bankwest, Inc. v. Thurbert E. Baker

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
June 10, 2005
No. 04-12420
THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 04-00988-CV-1-MHS
BANKWEST, INC.,
ADVANCE AMERICA, CASH ADVANCE CENTERS OF GEORGIA,
INC.,
Plaintiffs-
Appellants,
COMMUNITY STATE BANK,
FIRST AMERICAN CASH ADVANCE OF GEORGIA, LLC,
CASH AMERICA FINANCIAL SERVICES, INC.,
GEORGIA CASH AMERICA, INC.,
FIRST BANK OF DELAWARE,
CREDITCORP OF GEORGIA, LLC,
COUNTY BANK OF REHOBOTH BEACH, DELAWARE,
EXPRESS CHECK ADVANCE OF GEORGIA, LLC,
Consolidated-Plaintiffs-
Appellants,
versus
THURBERT E. BAKER, Attorney General of the State of Georgia,
CATHY COX, Secretary of State, for the State of Georgia,
in their official capacities,
Defendants-
Consolidated-Defendants-
Appellees.
________________________
Appeals from the United States District Court
for the Northern District of Georgia
_________________________
(June 10, 2005)
Before CARNES, HULL and HILL, Circuit Judges.
HULL, Circuit Judge:
This case concerns payday loans, which are small loans with interest rates
averaging 400-500% APR due on the next payday. This appeal presents the
question of whether the State of Georgia may regulate a narrow segment of agency
agreements between in-state payday stores and out-of-state banks or whether the
Georgia Act in issue is preempted by § 27(a) of the Federal Deposit Insurance Act
(“FDIA”), 12 U.S.C. § 1831d(a).
The Georgia Act in issue, Ga. Code Ann. §§ 16-17-1 to 16-17-10 (2004),
targets Georgia businesses and precludes in-state payday stores from directly
making payday loans in Georgia. No one challenges Georgia’s right to preclude
in-state stores or even in-state banks from making payday loans at these high
interest rates.
2
To avoid this direct prohibition, however, payday stores have entered into
agency agreements whereby the stores procure such payday loans for out-of-state
banks, but nonetheless, retain the predominate economic interest in the loans. To
stop this practice, the Act restricts in-state payday stores from acting as agents for
out-of-state banks in one, limited circumstance: where the agency agreement
grants the in-state agent “the predominate economic interest” in the bank’s payday
loan, which the parties agree means that the payday stores hold more than 50% of
the revenues from the loan. See Ga. Code Ann. § 16-17-2(b)(4). Georgia outlaws
this one type of agency agreement to prevent in-state payday stores from
circumventing Georgia’s usury laws and reaping the enormous revenues from
payday loans.
The district court denied the plaintiffs’ motion for a preliminary injunction
enjoining the enforcement of the Georgia Act. After review and oral argument, we
conclude that the district court did not abuse its discretion in denying the plaintiffs
preliminary injunctive relief.
I. FACTUAL BACKGROUND
Given the complexity of this case, we first outline the principal players, the
agreements at issue, and the relevant federal and state law.
A. The Principal Players
3
There are two distinct sets of plaintiffs in this case. The first set of plaintiffs
is the out-of-state banks, such as Community State Bank and Bankwest.1 The out-
of-state banks have no physical locations in Georgia. Rather, the out-of-state
banks offer payday loans in Georgia by contracting with independent, local
payday stores that form the second set of plaintiffs.
The second set of plaintiffs are corporations, such as Advance America,
First American Cash Advance of Georgia, Cash America Financial Services, and
others that operate payday stores in Georgia. These payday stores are not banks or
subsidiaries of banks. Rather, these payday stores are wholly independent
businesses with physical locations in Georgia. For example, Advance America
operates 89 payday stores in Georgia.
The payday stores operate not only in Georgia but in many states. In some
states, such as Florida, there is no limit on the interest rate a payday store may
charge a borrower. In such states, there is no need for these plaintiff payday stores
to associate themselves with out-of-state banks. Rather, they are permitted to loan
money directly to borrowers and charge any interest rate they wish.
In contrast, Georgia’s usury laws present a serious problem for the plaintiff
1
When we use the term “out-of-state bank,” we are referring to a “State-chartered insured
depository institution” under Federal Deposit Insurance Act, 12 U.S.C. § 1831d(a), that is
chartered in a state other than Georgia.
4
payday stores. In Georgia, the maximum legal annual percentage rate (“APR”) for
loans of $3,000 or less is 16%. See Ga. Code Ann. § 7-4-2(a)(2).2 This means
that a payday store is limited to the 16% APR provided under Georgia law if it
attempts to loan money directly to its customers. However, under the § 27(a) of
the FDIA, a state-chartered bank is authorized to charge the rate of interest
allowed under the laws of its charter state in any other state where it does
business. Thus, an out-of-state bank is not limited by Georgia’s 16% cap.
Accordingly, the local payday stores in this case have entered into
arrangements with out-of-state banks to serve as their agents in Georgia. By doing
so, the payday stores are marketing and procuring the high-interest rate loans in
Georgia allowed in the charter states of the out-of-state banks.
The typical scenario is that a borrower goes to a payday store in Georgia,
receives a single loan payment of up to $500, and signs a promissory note or loan
agreement identifying the out-of-state bank as the lender. At the time of receiving
the loan proceeds, the borrower often gives the payday store a post-dated check for
the loan repayment plus finance charge. The loan matures within four to forty-five
days, usually on the borrower’s next payday. On that day, the borrower must
2
For loans involving more than $3,000 the maximum legal rate of interest is 5% per
month. See Ga. Code Ann. § 7-4-18(a).
5
repay the principal, plus a finance charge of 17% to 27% of the principal,
depending on the term of the loan. When the finance charge is calculated as an
APR, it far exceeds the maximum permitted under Georgia law. In fact, the
charges on a typical two-week payday loan have an APR between 442% and
520%.
The payday stores maintain many physical locations in Georgia and pay all
costs associated with maintaining those locations, including rent, equipment costs,
staffing costs, taxes, and advertising. Although the out-of-state bank advances the
initial loan funds, the payday stores market the loans, process applications, collect
loans after maturity, submit reports about the loans to the out-of-state bank, and
remit the loan payments to a local bank account in the out-of-state bank’s name.
As detailed later, the payday stores effectively do all the work and retain 81% of
the loan revenues.
The defendant in this case is, essentially, the State of Georgia. As discussed
below, the State of Georgia prohibits Georgia-licensed businesses, such as the
plaintiff in-state payday stores from (1) making payday loans directly to
borrowers, and (2) acting as agents when paid the predominate economic interest
in the payday loan.
B. The Contracts
6
Just as there are two types of plaintiff in this case, there are two types of
contract. First, there is the contract between the out-of-state bank and the
borrower. The relationships between the out-of-state banks and the borrowers are
governed by written loan contracts. In the consumer loan contract provided by
plaintiff Bankwest, which we have been led to believe is typical, Bankwest is
identified as “the Lender” and Advance America, the payday store, is identified as
“the fiscal agent and loan marketer/servicer.” The loan contract discloses the APR
of the loan, the total finance charge, the amount of the loan, and the total amount
that will have to be repaid by the borrower. The first page of the loan contract,
which contains all of the financial terms of the loan, is signed by only the
borrower and Bankwest.3 Thus, Bankwest, as the lender, sets the terms and
features of the loans.
Second, there is also the entirely separate contract between the in-state
payday store and the out-of-state bank. It is the in-state payday stores’ agency
relationships that the State of Georgia has attempted to regulate, but only when the
payday store retains the predominate economic interest in the loan revenues.
The agreement between plaintiffs Advance America (an in-state payday
3
The second and final page of the loan contract contains an arbitration agreement, which
must be signed by the borrower, Bankwest, and Advance America.
7
store) and Bankwest (an out-of-state bank) is in the record, and again we have
been led to believe that it is typical. Under the agreement, Advance America pays
for all costs related to its storefront locations and employees.4 Advance America
procures the borrower and submits a loan application to Bankwest. Bankwest then
approves (or denies) the application and advances all funds. Bankwest uses a
separate third-party “loan processing agent” (referred to as “Tele-Track” in the
record) to electronically approve applications.5
In addition, if a borrower does not pay back the loan, the agreement
transfers part of the loan loss to Advance America.6 Every three months, the total
amount of Bankwest loans that Advance America cannot collect (known as loan
loss) is calculated. If the loan loss is 8.5% or less of the total amount of the
finance charges (which are 17% of the loan) over that period, then Bankwest
4
The costs include all rental and occupancy costs, up-front and leasehold improvements,
equipment costs, processing costs, printing costs, maintenance costs, staffing costs, taxes,
signage costs, and advertising. The agreement between Bankwest and Advance America does
not contain any provisions allowing Bankwest to train, supervise, or monitor Advance America’s
employees who deal with the borrowers and collect the loans. Further, the agreement provides
that Advance America has the duty and responsibility of complying with all federal and state
laws when collecting loans. It is undisputed that Bankwest and Advance America are wholly
separate entities.
5
Tele-Track is an automated-consumer-information database that Advance America also
uses in other states where Advance America makes loans in its own name.
6
Bankwest “owns” all the loans initially, but retains the right to sell a loan to any third
party; Advance America, as the payday store has a right of first refusal on any loan that Bankwest
chooses to sell.
8
absorbs the loss.7 That means Bankwest absorbs the first 1.45% (8.5% of 17%) of
the total loan amounts. However, if the loan loss exceeds 8.5% of the finance
charges, Bankwest reduces the amount owed to Advance America for its services
by that excess up to 13.8% of the total loans made. In other words, Bankwest
absorbs the loans losses up to the point where they equal 1.45% of the total loans,
and Advance America absorbs the losses to the extent they exceed 1.45% up to
13.8% of the total loans. If the loan losses exceed 13.8% of the total loans,
Bankwest bears the remaining risk of loss.8
Further, the agreement allocates the loan revenues largely to Advance
7
The agreement between Bankwest and Advance America states:
The Bank has established a standard to monitor the effectiveness of collection
efforts of Advance America. The Bank requires that loan losses to the Bank on
the Loans shall be eight and one half percent (8.5%) or less of the amount of the
finance charge on the Loans, as the finance charge is disclosed in the federal Truth
in Lending box contained in the Notes (the “Loss Rate Standard”). Advance
America agrees to meet the Loss Rate Standard in its collections. If Advance
America’s collection efforts do not meet this Loss Rate Standard established by
the Bank, the Fees (as that term is defined in Section 2(g) below) to be paid
Advance America for marketing and servicing the Loans as the Bank’s fiscal
agent will be reduced by the dollar amount that the loan losses exceed the Loss
Rate Standard. The Fees will be adjusted in accordance with this Section on a
quarterly basis based on the calendar year to date loss experience.
8
The record reflects that for the 14-month period just before the filing of the motion for
injunction, “the Loss Rate Standard on the aggregate portfolio of loans made by BankWest to
Georgia borrowers was approximately 12.5%. Thus, BankWest was responsible for
approximately 68% of all loan losses incurred during that period.” In turn, Advance America
was responsible for approximately 32% of all loan losses. Thus, it is not disputed that the agency
agreement between Bankwest and Advance America makes Advance America responsible for
part of the loan losses on the payday loans.
9
America. The agreement states that the maximum amount of any loan is $1,000
and that borrowers are charged $17 for every $100 borrowed.9 That is the finance
charge. Advance America’s total compensation is a $13.80 “marketing and
servicing fee” for every $100 advanced to a borrower.10 As a result, Advance
America, the payday store, receives 81% ($13.80 out of $17) of the loan revenues
generated by the finance charge. The parties do not dispute the fact that, under
their agency agreements with the out-of-state banks, the plaintiff payday stores
have the predominate economic interest in the revenues generated by the payday
loans in issue.
C. The Relevant Federal and State Law
1. Federal Law
As noted earlier, in Georgia, there is a 16% cap on the interest rate that in-
state payday stores, and even in-state banks, may charge for loans under $3,000.
Georgia, however, cannot prevent an out-of-state bank from charging its higher
home-state interest rates because § 27(a) of the FDIA authorizes a state-chartered
bank to charge the interest rates allowed under the laws of its charter state in any
9
The agreement actually states that the maximum loan amount is “One thousand ($500)
[sic] dollars.” The typo in the agreement is not relevant to any of the issues we are discussing.
10
Exhibit A to the agreement states that Advance America’s fee for collected loans is
“$13.80 per $100.00 loaned.”
10
other state where it does business. Specifically, FDIA § 27(a) covers “any loan”
of the out-of-state bank but addresses solely the interest-rate element of the loan,
as follows:
In order to prevent discrimination against State-chartered insured depository
institutions, . . . such State bank . . . may, notwithstanding any State
constitution or statute which is hereby preempted for the purposes of this
section, . . . charge on any loan . . . interest . . . at the rate allowed by the
laws of the State . . . where the bank is located . . . .
12 U.S.C. § 1831d(a).
Georgia recognizes that the plaintiff out-of-state banks in this case are
authorized to charge the high-interest rates of 400-500% under the laws of their
charter states.11 Given § 27(a), Georgia cannot regulate or restrict out-of-state
banks acting for themselves from charging these high-interest rates on out-of-state
bank loans in Georgia. Georgia does not dispute that “any” means “any loan” of
the out-of-state bank. As explained later, this is why Georgia has exempted out-
of-state banks throughout the payday loan Act in issue.
2. State Law
What Georgia says it has the power to regulate in the Act are in-state payday
stores in these two ways: (1) to prohibit in-state payday stores from making
11
Plaintiff Bankwest and Community State Bank are chartered in South Dakota. Plaintiffs
First Bank of Delaware and County Bank of Rehoboth Beach are chartered in Delaware. Both of
these states permit their state banks to charge these high-interest rates of 400-500%.
11
payday loans directly to borrowers; and (2) to restrict in-state payday stores from
acting as agents for exempt entities in the one circumstance where the in-state
payday store holds the predominate economic interest in the payday loans.
Specifically, in April 2004, the Georgia legislature enacted Senate Bill 157,
2004 Ga. Laws 440, now codified in Georgia Code Ann. §§ 16-17-1 to 16-17-10.
The Act contains findings that even though the Georgia Attorney General had
deemed payday loans with excessive interest rates to be illegal under previously
existing state law, and even though the Georgia Industrial Loan Commissioner had
issued cease-and-desist orders to payday stores, the payday stores have continued
their usurious practices. Ga. Code Ann. § 16-17-1(b).12 The purpose of the Act,
according to the legislative findings contained within it, is to provide “sufficient
deterrents” to “cause this illegal activity to cease.” Id.The Act declares payday loans unlawful in Georgia. Specifically, the Act
declares it “unlawful for any person to engage in any business . . . which consists
in whole or in part of making, offering, arranging, or acting as an agent in the
making of loans of $3,000 or less” if that loan violates, among other things,
12
The Georgia Act declares that “payday lending . . . is having an adverse effect upon
military personnel, the elderly, the economically disadvantaged, and other citizens of the State of
Georgia.” Ga. Code Ann. § 16-17-1(c).
12
Georgia’s usury laws. Id. §§ 16-17-2(a), (a)(1)(E), (a)(1)(G).13 Although § 16-17-
2(a) of the Act declares these payday loans unlawful, § 16-17-2(a)(3) grants an
explicit exception to out-of-state banks under this section of the Act. See Ga.
Code Ann. § 16-17-2(a)(3).14 Thus, the Act does not prohibit out-of-state banks
from making payday loans at high-interest rates in Georgia.
13
The Act declares that payday loans are unlawful if they violate any number of Georgia’s
consumer protection laws. Specifically, § 16-17-2(a) states:
It shall be unlawful for any person to engage in any business, in whatever form
transacted, including, but not limited to, by mail, electronic, the Internet, or
telephonic means, which consists in whole or in part of making, offering,
arranging, or acting as an agent in the making of loans of $3,000.00 or less unless:
(1) Such person is engaging in financial transactions permitted pursuant to:
(A) The laws regulating financial institutions as defined under Chapter 1 of Title
7, the “Financial Institutions Code of Georgia”;
(B) The laws regulating state and federally chartered credit unions;
(C) Article 13 of Chapter 1 of Title 7, relating to Georgia residential mortgages;
(D) Chapter 3 of Title 7, the “Georgia Industrial Loan Act”;
(E) Chapter 4 of Title 7, relating to interest and usury;
(F) Chapter 5 of Title 7, “The Credit Card and Credit Card Bank Act,” including
financial institutions and their assignees who are not operating in violation of said
chapter; or
(G) Paragraph (2) of subsection (a) of Code Section 7-4-2 in which the simple
interest rate is not greater than 16 percent per annum;
(2) Such loans are lawful under the terms of:
(A) Article 1 of Chapter 1 of Title 10, “The Retail Installment and Home
Solicitation Sales Act”;
(B) Article 2 of Chapter 1 of Title 10, the “Motor Vehicle Sales Finance Act”; or
(C) Part 5 of Article 3 of Chapter 12 of Title 44, relating to pawnbrokers . . . .
Ga. Code Ann. § 16-17-2(a)(1) - (a)(2).
14
Payday loans are illegal in Georgia unless they are issued by a “bank chartered under the
laws of another state and insured by the Federal Deposit Insurance Corporation . . . [that] is not
operating in violation of the federal and state laws applicable to its charter . . . .” Ga. Code. Ann.
§ 16-17-2(a)(3).
13
Further, the main purpose of the Georgia Act is to regulate in-state payday
lenders and not out-of-state banks. The Act exempts out-of-state banks from the
definition of payday lenders and payday lending, § 16-17-1(a);15 it explicitly
exempts out-of-state banks from the prohibited-conduct sections, §§ 16-17-2(a)
and (b); it exempts out-of-state banks from the provision regulating choice of law
and choice of forum clauses in loan contracts, § 16-17-2(c)(1);16 it exempts out-of-
state banks from the civil monetary penalties in §§ 16-17-3 and 16-17-4 because
those provisions are limited to only violations of §§ 16-17-2(a) and (b), which
exempt out-of-state banks; it revokes the business license of Georgia businesses
and only if they engage in “payday lending,” the definition of which excludes out-
of-state banks, §§ 16-17-7, 16-17-1(a); it designates the site or location where
“payday lending” takes place in Georgia a public nuisance and out-of-state banks
are exempt from the definition of payday lending, §§ 16-17-8, 16-17-1(a). In
15
Section 16-17-1(a) defines payday lending and payday lenders for the purposes of the
remainder of the Act. Payday lending is defined as “all transactions in which funds are advanced
to be repaid at a later date . . . .” Ga. Code. Ann. § 16-17-1(a). Payday lenders are defined as
“one who engages in such transactions.” Id. The first section of the Act then exempts out-of-
state banks from the definitions of both payday lending and payday lenders and states: “This
definition of ‘payday lending’ expressly incorporates the exceptions and examples contained in
subsections (a) and (b) of Code Section 16-17-2.” Ga. Code. Ann. § 16-17-1(a); see § 16-17-
2(a)(3).
16
For example, § 16-17-2(c)(1) is limited to “payday lender.” As explained above, the
Act exempts out-of-state banks from the definition of payday lender, and, thus, § 16-17-2(c)(1)
has no application to out-of-state banks.
14
short, the Act attempts to regulate in-state payday lenders and not out-of-state
banks.
In addition to prohibiting in-state payday stores from making payday loans
directly, Georgia has declared agency arrangements between payday stores and
exempt entities, where the payday store has “the predominant economic interest”
in the loan revenue, to be an unlawful scheme or contrivance designed to allow the
in-state payday stores to circumvent Georgia’s usury laws. Specifically, Georgia
declares that the use of agency or partnership agreements between in-
state entities [payday stores] and out-of-state banks, whereby the in-state
agent holds a predominate economic interest in the revenues generated
by the payday loans made to Georgia residents, is a scheme or
contrivance by which the agent seeks to circumvent . . . the usury
statutes of this state.
Ga. Code. Ann. § 16-17-1(c). It is this single type of agency or partnership
relationship that Georgia regulates by the Act. Georgia has done so to prevent in-
state payday stores that keep the predominate economic interest in local payday
loans from circumventing Georgia’s 16% cap by partnering with out-of-state
banks.
Section 16-17-2(b)(4) of the Act explicitly makes “[a]ny arrangement by
which a de facto lender [payday store] purports to act as the agent for an exempt
entity [out-of-state bank]” unlawful if the “entire circumstances of the transaction
15
show that the purported agent holds, acquires, or maintains a predominant
economic interest in the revenues generated by the loan.” Id. § 16-17-2(b)(4)
(emphasis added). The predominate economic interest requirement is fulfilled by
one criteria: the in-state payday store receives over 50% of the revenue from the
loan. Id.17
Because the prohibited agency conduct in § 16-17-2(b)(4) is subject to the
exceptions in § 16-17-2(a), the Act also specifically exempts out-of-state banks
from the reach of § 16-17-2(b)(4). See id. §§ 16-17-2(a)(3), (b). Again, the Act
targets the conduct of in-state payday stores, not out-of-state banks.
Thus, the Act has no application when out-of-state banks act for themselves
or act through an in-state agent (even a payday-store agent) who is paid less then
50% of the revenue from a payday loan. If, however, an out-of-state bank enters
into an agreement with an in-state payday store that allows the independent
payday store to have the predominate economic interest (by earning more than
50% of the revenue from a payday loan), the payday store, and not the out-of-state
bank, is liable for damages under the Act. Although the Act does not empower
17
The parties do not dispute that § 16-17-2(b)(4) affects only those transactions in which
the plaintiff payday store has “the predominate economic interest” in the revenues from the
payday loan. The parties also do not dispute that under the secondary agreements at issue, the
plaintiff payday stores receive more than 50% of the revenues from the payday loan, and, thus,
have the predominate economic interest in the payday loan. The question, thus, is whether
Georgia can preclude in-state payday stores from entering into these agency agreements.
16
Georgia to prosecute an out-of-state bank directly as a principal party to the
agency agreement, the Act does prohibit the in-state agent, acting pursuant to an
unlawful contract, from collecting the payday loans and declares that the payday
loans procured by the in-state payday store are void ab initio. See Ga. Code Ann.
§ 16-17-3.
In addition, § 16-17-2(d) of the Act imposes penalties on payday stores that:
(1) make payday loans directly in their own name; or (2) undertake to make
prohibited secondary agreements between themselves and out-of-state banks,
whereby the payday stores maintain the predominate economic interest from
payday loans made in the bank’s name.18 See id. § 16-17-2(d).
II. PROCEDURAL HISTORY
Immediately after the Georgia Act was enacted on April 9, 2004, the payday
stores and out-of-state banks filed a total of four lawsuits against the Georgia
Attorney General, the Georgia Secretary of State, or both of them, seeking
temporary restraining orders and preliminary and permanent injunctions against
18
The Act provides that any individual borrower or class of borrowers whose payday loan
was procured pursuant to an illegal contract between a payday store and an out-of-state bank can
sue the payday store for “three times the amount of any interest or other charges to the borrower,”
and the court must award successful plaintiffs attorneys’ fees as well as costs. Ga. Code Ann.
§ 16-17-3. In addition, the State may bring an action for civil penalties against payday stores
who violate subsections (a) or (b) “equal to three times the amount of any interest or charges to
the borrowers in the unlawful transactions.” Id. § 16-17-4(a). The out-of-state banks, however,
are not subject to these civil penalties in § 16-17-3 or § 16-17-4(a).
17
enforcement of the Act, as well as declaratory judgments that the provisions of the
Act that apply to them are preempted by federal law and are unconstitutional. The
district court consolidated the four cases and heard argument on the motions for
preliminary injunction. Because the Act was scheduled to go into effect on May 1,
2004, the district court entered a temporary restraining order prohibiting
enforcement against the plaintiffs until May 15, 2004.
Two days before the scheduled expiration of the TRO, the district court
denied the plaintiffs’ motions for a preliminary injunction and refused to enter an
injunction pending appeal.19 The district court found that the plaintiffs did not
demonstrate a likelihood of success on the merits as to any of their claims. The
district court also decided that the balance of harms favored Georgia and weighed
against issuing an injunction, and that enjoining enforcement of the Act would
harm the public interest. The district court did find that the plaintiffs would be
irreparably harmed if the Act were enforced against them, and the parties do not
19
To qualify for a preliminary injunction, the lenders had to show: (1) a substantial
likelihood of success on the merits; (2) that they would suffer irreparable injury without the
injunction; (3) that the threatened injury outweighed whatever damage the injunction would
cause the State of Georgia; and (4) that, if issued, the injunction would not be adverse to the
public interest. See Four Seasons Hotels & Resorts v. Consorcio Barr, 320 F.3d 1205, 1210
(11th Cir. 2003). A “preliminary injunction is an extraordinary and drastic remedy not to be
granted unless the movant clearly carries the burden of persuasion” on these four elements.
United States v. Jefferson County, 720 F.2d 1511, 1519 (11th Cir. 1983) (internal quotation
marks and citation omitted).
18
dispute that finding.20
The plaintiffs filed notices of appeal as well as motions asking this Court to
issue an injunction pending appeal. We denied the motions for an injunction
pending the appeal but did expedite the appeal. As things stand now, the Act has
been in effect since May 25, 2004, when the district court’s extended TRO
expired.
III. STANDARD OF REVIEW
We generally review the district court’s denial of an injunction only for an
abuse of discretion. See Delta Air Lines, Inc. v. Air Line Pilots Ass’n, Int’l, 238
F.3d 1300, 1308 (11th Cir. 2001). However, determinations of law made in the
course of denying a preliminary injunction are reviewed de novo. Bailey v. Gulf
Coast Transp., Inc., 280 F.3d 1333, 1335 (11th Cir. 2002). “‘A district court by
definition abuses its discretion when it makes an error of law.’” United States v.
Pruitt, 174 F.3d 1215, 1219 (11th Cir. 1999) (quoting Koon v. United States, 518
U.S. 81, 100, 116 S. Ct. 2035, 2047 (1996)). As to findings of fact made in the
course of denying a preliminary injunction, “the trial court is in a far better
position than this Court to evaluate [the] evidence, and we will not disturb its
factual findings unless they are clearly erroneous.” Cumulus Media, Inc. v. Clear
20
The district court did extend the TRO until May 25, 2004.
19
Channel Communications, Inc., 304 F.3d 1167, 1171 (11th Cir. 2002) (internal
citations omitted).
IV. DISCUSSION
The plaintiffs raised five claims in the district court but press only three of
them here. Those three claims are that the Georgia Act: (1) is preempted by
§ 27(a) of the FDIA; (2) violates the dormant Commerce Clause; and (3) violates
the Federal Arbitration Act. Before discussing these issues, we address what
deference is due to Federal Deposit Insurance Corporation (“FDIC”) positions
regarding preemption.
A. Chevron
The parties dispute what position the FDIC has taken on the preemption
issue here. The out-of-state banks and payday stores point to certain statements
made by various FDIC officials suggesting one view and Georgia points to various
other documents that it suggests indicate that the FDIC has a different view on the
preemption issue. However, the threshold issue for us is whether the FDIC’s view
is entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 104 S. Ct. 2778 (1984).21
21
The plaintiffs filed the transcript as supplemental authority. Georgia has moved to
strike the transcript, arguing that it is not a proper supplemental authority under Fed. R. App. P.
28(j). Because the transcript does not affect our conclusion, we deny Georgia’s motion as moot.
20
Putting aside the question of what the FDIC’s position is, see Christensen v.
Harris County, 529 U.S. 576, 587, 120 S. Ct. 1655, 1662-63 (2000)
(interpretations in opinion letters, policy statements, manuals, and the like do not
warrant Chevron deference), it is clear to us that no deference is due.
The reason is that we do not defer to agency positions, whether formal or
informal, on preemption issues. See Smiley v. Citibank (South Dakota), 517 U.S.
735, 744, 116 S. Ct. 1730, 1735 (1996) (distinguishing between the “substantive
(as opposed to pre-emptive) meaning of a statute,” on which deference must be
granted, and “the question of whether a statute is pre-emptive”); see also Nat’l
Mining Ass’n v. Sec’y of Labor, 153 F.3d 1264, 1267 (11th Cir. 1998) (citing
Colo. Pub. Utils. Comm’n v. Harmon, 951 F.2d 1571, 1579 (10th Cir. 1991)).
Because “a preemption determination involves matters . . . more within the
expertise of the courts than within the expertise of” an administrative agency, we
need not defer to an agency’s opinion regarding preemption. Colo. Pub. Utils.
Comm’n, 951 F.2d at 1579. That side issue settled, we turn now to our own
determination of the preemption issue.
B. Preemption
There are three types of preemption: express preemption, field preemption,
and conflict preemption. Express preemption occurs when “Congress has
21
manifested its intent to preempt state law explicitly in the language of the statute.”
Cliff v. Payco Gen. Am. Credits, Inc., 363 F.3d 1113, 1122 (11th Cir. 2004). Field
preemption occurs when “federal regulation in a legislative field is so pervasive
that we can reasonably infer that Congress left no room for the states to
supplement it . . . .” Id. Conflict preemption arises either when “it is impossible
to comply with both federal and state law” or “when state law stands as an
obstacle to achieving the objectives of the federal law.” Id. Because the field
preemption and conflict preemption issues are easily resolved, we address them
first.
C. Field Preemption
With regard to field preemption, it is clear that the FDIA was not intended
to “occupy the field” of state bank regulation. In the case of state-chartered banks,
the FDIA itself makes it clear that while state banks are subject to some federal
regulation, the states remain the “primary regulatory authority” over state banks
participating in the FDIC’s deposit insurance program. See, e.g., 12 U.S.C. §§
1813(r) (defining “State bank supervisor” as state officer, agency, or other entity
with primary regulatory authority over state banks); 1820(h)(1)(A) (granting State
bank supervisor regulatory authority over state banks with respect to state laws
governing, among other things, fair lending and consumer protection); 1831a(i)
22
(providing that section governing activities of insured state banks “shall not be
construed as limiting the authority of . . . any State supervisory authority to impose
more stringent restrictions”).22
Although § 27(a) authorizes state banks to export their home interest rate to
another state, the FDIA expressly acknowledges that the host state’s consumer and
fraud laws still apply to the exporting state banks. 12 U.S.C. § 1820(h)(1)(A)
(providing that the state bank supervisor may examine branches operated in such
state by an out-of-state bank “for the purpose of determining compliance with host
state laws, including those governing banking, community reinvestment, fair
lending, consumer protection, and permissible activities”). Indeed, the activities
22
The dissent emphasizes the heavy federal presence in national banking, but
inappropriately, in our view, marginalizes the role of states in banking matters. The centerpiece
of the federal banking laws is the National Banking Act of 1864 (“NBA”), which establishes that
national banks are free from state interference and subject to only federal banking regulations.
National banks are endowed by federal law with “all such incidental powers as shall be necessary
to carry on the business of banking.” 12 U.S.C. § 24 Seventh. However, the NBA does not
govern or protect state banks. Furthermore, there is no corresponding grant of “all incidental
powers” to state banks in the FDIA as there is to national banks in the NBA.
In contrast to the broad protection provided under the NBA, the FDIA created the FDIC
for the purpose of protecting customers of failed banks by making deposit insurance available to
qualified state and federal lending institutions. Nonetheless, as explained above, states and state
laws, not the FDIC and the FDIA, remain the primary regulators of state banks.
The dissent also emphasizes that the heavy federal presence in national banking and the
excessive federal regulation of national interest rates extend as far back as 1864 with the
enactment of the NBA, and that § 27(a) of the FDIA “mirrors” § 85 of the NBA. However, the
NBA regulates the interest rates of national banks, and § 27(a) of the FDIA (affecting state
banks) was not enacted until 1980, and the FDIA, unlike the NBA, expressly preserves the state’s
traditional powers over state banks.
23
of state banks are areas that traditionally have been regulated by the states. See
Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 38, 100 S. Ct. 2009, 2016 (1980).
For example, states have authority to regulate the establishment of in-state
branches of banks and their activities. See e.g., 12 U.S.C. § 1831u(a)(4) - (5).
Therefore, we readily conclude that there is no field preemption of the State’s
power to regulate state banks.
D. Conflict Preemption
With regard to conflict preemption, this is not a case where compliance with
both the state and federal laws is impossible. As in Barnett Bank of Marion
County v. Nelson, “[t]he two statutes do not impose directly conflicting duties on
[state] banks – as they would, for example, if the federal law said, ‘you must
[export your home-state interest rate],’ while the state law said, ‘you may not.’”
517 U.S. 25, 31, 116 S. Ct. 1103, 1108 (1996). Therefore, the conflict preemption
question turns on whether the Act “stands as an obstacle to achieving the
objectives of the federal law,” Hughes v. Att’y Gen. of Florida, 377 F.3d 1258,
1265 (11th Cir. 2004) (citing Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363,
372-73, 120 S. Ct. 2288, 2294 (2000) and Cliff, 363 F.3d at 1122), or whether the
Act substantially impairs the right created by the federal law. Barnett Bank, 517
U.S. at 33, 116 S. Ct. at 1109. For the following reasons, the Act does not stand as
24
an obstacle to achieving this objective or substantially impair the right created by
the federal law, and, therefore, there is no conflict preemption.
First, and most important, the Act provides a complete exemption to out-of-
state banks for liability under the Act. See Ga. Code. Ann. §§ 16-17-2(a)(3), (b).
Therefore, out-of-state banks acting for themselves are free to charge Georgia
borrowers their home state interest rates as authorized by § 27(a) of the FDIA
without being subject to any liability under the Act.
Second, the Act does not prohibit out-of-state banks from using independent
agents, including payday stores, or other partnerships to make payday loans at
their home-state interest rates in Georgia. Rather, the Act restricts out-of-state
banks from only one limited type of agency: using a separate, in-state business
entity in Georgia that holds “a predominant economic interest” in the loan
revenues. Ga. Code Ann. § 16-17-2(b)(4).
In addition, the Act leaves open other alternatives for out-of-state banks to
export their home-state interest rates to Georgia borrowers. Given modern
technology and communications in today’s economic world, out-of-state banks
have a plethora of distribution channels to use in exporting their home state
interest rates to Georgia borrowers.
In sum, nothing in the language of § 27(a) gives out-of-state banks the sole
25
and exclusive right to use independent, in-state payday stores as agents or to
define the nature of their relationship with those payday stores. Consequently, we
conclude that there is no conflict preemption.
E. Express Preemption
1. Section 27(a) Preempts State Law
As stated above, express preemption occurs when “Congress has manifested
its intent to preempt state law explicitly in the language of the statute.” Cliff, 363
F.3d at 1122. Section 27(a) of the FDIA states that “notwithstanding any State
constitution or statute which is hereby preempted for the purposes of this section,”
an out-of-state bank may charge on any loan the rate of interest allowed by the
laws of its charter state. 12 U.S.C. § 1831d(a). Therefore, this is obviously a case
in which the federal statute preempts some forms of state law.
Because this is an express preemption case, § 27(a) preempts “something”
and precludes state laws on that “something.” Accordingly, the question is
whether the language of § 27(a) preempts the Georgia Act, not whether Congress
intended to preempt state legislation when enacting § 27(a). In turn, this case
presents two sub-questions of statutory interpretation that must be answered. The
first question is what is the scope of the express preemption accomplished by §
27(a)’s plain language which provides that a “State bank . . . may . . . charge on
26
any loan . . . interest . . . at the rate allowed by the laws of the State . . . where the
bank is located.” 12 U.S.C. § 1831d(a). The second question is whether the
Georgia Act falls within the scope of § 27(a).
2. Statutory Interpretation Principles
When Congress expressly codifies its preemptive intent in statutory form,
our analysis “begins with the language of the statute.” Lorillard Tobacco Co. v.
Reilly, 533 U.S. 525, 542, 121 S. Ct. 2404, 2415 (2001). Our task of statutory
interpretation must also be guided by Medtronic, Inc. v. Lohr, 518 U.S. 470, 484,
116 S. Ct. 2240, 2250 (1996), where the United States Supreme Court addressed a
federal statute that “expressly pre-empts state law.” The Supreme Court noted that
in such express-preemption situations “our interpretation of [the preemptive]
language does not occur in a contextual vacuum. Rather, that interpretation is
informed by two presumptions about the nature of pre-emption.” Id. at 485, 116
S. Ct. at 2250.
“First, because the States are independent sovereigns in our federal system,
we have long presumed that Congress does not cavalierly pre-empt state-law . . . ,
particularly in those [areas] in which Congress has legislated in a field which the
States have traditionally occupied.” Id. (internal quotation marks, punctuation,
and citations omitted). In such situations, it is important to give the statute a
27
narrow construction in order to be consistent with both federalism concerns and
the historic primacy of state regulation. See id.; Cipollone v. Liggett Group, Inc.,
505 U.S. 504, 518, 121 S. Ct. 2608, 2618 (1992). As noted earlier, states and state
regulators have traditionally regulated state banks, and remain the primary
regulatory authority.
Second, the Supreme Court has instructed that in interpreting a federal
statute, including one that expressly preempts state law, federal courts must
consider Congressional intent and purpose, as these are the “touchstone in every
pre-emption case.” Medtronic, 518 U.S. at 485, 116 S. Ct. at 2250 (internal
quotation marks and citations omitted).
As a result, any understanding of the scope of a pre-emption statute must
rest primarily on a fair understanding of congressional purpose.
Congress’ intent, of course, primarily is discerned from the language of
the pre-emption statute and the “statutory framework” surrounding it.
Also relevant, however, is the structure and purpose of the statute as a
whole, as revealed not only in the text, but through the reviewing court’s
reasoned understanding of the way in which Congress intended the
statute and its surrounding regulatory scheme to affect business,
consumers, and the law.
Id. at 485-86, 116 S. Ct. at 2250-51 (internal quotation marks and citations
omitted).
The Supreme Court has set out the governing framework courts should
follow.
28
In these cases, our task is to identify the domain expressly pre-empted,
because an express definition of the preemptive reach of a statute
supports a reasonable inference that Congress did not intend to pre-empt
other matters. . . . Because federal law is said to bar state action in a field
of traditional state regulation. . . we work on the assumption that the
historic police powers of the States are not to be superseded by the
Federal Act unless that is the clear and manifest purpose of Congress.
Lorillard Tobacco, 533 U.S. at 541-42, 121 S. Ct. at 2414 (internal quotations,
citations, and punctuation marks omitted). We now turn to the language of
§ 27(a).
3. Scope of § 27(a)
According to the plain language of § 27(a), the domain of law expressly
preempted by § 27(a) are state laws which prohibit:
1. a State bank;
2. from charging interest at the rate allowed by the home State;
3. on any loan.
The language of § 27(a) refers only to state banks, and does not address non-bank
businesses, such as payday stores, at all.
Even as to “any” loan of state banks, the language of § 27(a) does not
mention any other element or term of the loan other than interest rates.
Importantly, it does not mention any collateral activity associated with the loan,
such as marketing, advertising, solicitation, or any aspect of the loan procurement
29
process. It does not mention collection practices associated with the loan. Indeed,
it is not disputed that state consumer protection and fraud laws may regulate an
out-of-state-bank’s activities associated with its loan. Further, nothing in § 27(a)
regulates separate contracts between out-of-state banks and in-state vendors to
which the borrower is not even a party (such as the agency agreements here). The
apparent clarity of § 27(a)’s language is, at least, important evidence of legislative
intent.
So while an out-of-state bank in Georgia clearly can make a payday loan at
a 500% APR, the State of Georgia, nonetheless, may regulate an out-of-state
bank’s procurement and collection practices in Georgia. See 12 U.S.C. §
1820(h)(1)(A).
In the same vein, the language of § 27(a) does not mention in-state, non-
bank agents or agents at all, or expressly permit out-of-state banks to use any in-
state business or person it happens to select as an agent. For example, Georgia has
the right to require payday stores to be licensed and out-of-state banks could not
use an in-state agent who is not licensed to do business in Georgia. There is no
language in § 27(a) addressing which local, non-bank vendors may properly act as
agents in loan transactions or under what circumstances local, non-bank vendors
may so act. Nothing in § 27(a) seeks to regulate the entirely separate agency
30
contracts entered into between out-of-state banks and payday stores. Instead, the
scope of § 27(a) is quite narrow and restricted to one element of any loan by out-
of-state banks: the interest rate.23
4. The Georgia Act
The next question is whether the Georgia Act falls within the above
preemptive scope of § 27(a). The Act contains a severability provision, and thus
we proceed section-by-section through the Act.24
Obviously, § 27(a) expressly preempts certain state legislation. For
example, if Georgia had enacted legislation that said “out-of-state banks cannot
charge interest rates on any loan greater than Georgia’s 16% cap,” we would have
no difficulty determining that such state legislation was expressly preempted by
§ 27(a).
On the other hand, as discussed above, Georgia can regulate a variety of
23
The dissent states that “[p]reemption would be a meaningless doctrine if states could
effectively rewrite federal statutes by adding conditions or limitations.” In this case, the Georgia
Act does not add a condition or limitation to a federal statute. Instead, as explained herein, the
Georgia Act regulates conduct outside the scope of § 27(a). Rather than making preemption the
all-powerful force the dissent suggests, we limit federal preemption of the state’s regulation of
state banks to what it is intended – preemptive only within the scope of § 27(a).
24
The severability provision provides: “If any provision of this chapter or the application
of such provision is found by a court of competent jurisdiction in the United States to be invalid
or is found to be superseded by federal law, then the remaining provisions of this chapter shall
not be affected, and this chapter shall continue to apply to any other person or circumstance.”
Ga. Code Ann. § 16-17-10.
31
collateral activities associated with loans. If Georgia had enacted legislation that
precluded felons convicted of fraud from being licensed fiscal agents in loan
transactions in Georgia or precluded banks (including out-of-state banks) from
employing such felons in Georgia as third-party vendors or service providers to
handle loan funds, we would have no difficulty determining that such state
legislation was not preempted by § 27(a). None of the parties dispute Georgia’s
ability to regulate agency arrangements between in-state felons and out-of-state
banks. Likewise, no one disputes Georgia’s ability to regulate in-state businesses,
such as the local payday stores in this case.
Therefore, the first question is whether the Act, and in particular § 16-17-
2(b)(4), is a prohibited interest-rate limitation on loans between Bankwest and its
borrowers or a permitted agency regulation on when non-bank payday stores
operating in Georgia may properly serve as agents for out-of-state banks.25
25
In expanding the plain language of § 27(a), the dissent uses these two theories: that
restricting an in-state agent is a way “of getting at the principal” and that Georgia may not
indirectly restrict the authority that § 27(a) gives out-of-state banks by directly restricting the
actions of in-state agents. In our view, these theories implicitly recognize that the Georgia Act
does not directly encroach upon the authority granted by § 27(a). They also support our
conclusion that the plain language of § 27(a) does not reach the conduct regulated by the Georgia
Act. Indeed, the language of § 27(a) says nothing about the loan procurement or collection
practices by agents and nothing about agents, much less in-state, non-bank agents of out-of-state
banks. Instead, § 27(a) directly restricts only interest-rate limitations and cannot be so expanded
to cause indirect preemption of the agency agreement between in-state entities, such as payday
stores, and out-of-state banks.
32
5. Section 16-17-2(b)(4) of the Georgia Act
For the following reasons, we conclude that § 16-17-2(b)(4) of the Act is a
permitted agency limitation that applies to the agency agreement between in-state
payday stores and out-of-state banks, and, thus, is not expressly preempted by §
27(a).
First, and most importantly, nothing in § 16-17-2(b)(4) purports to place any
direct limitation on interest rates an out-of-state bank may charge individual
borrowers on any loan in Georgia. Rather, out-of-state banks are permitted to
charge the same home-state interest rates in Georgia as they were before the Act.
As detailed above, the Georgia Act repeatedly exempts out-of-state banks from not
only the definition of payday lenders and payday lending, but from various other
provisions of the Act. In fact, § 16-17-2(b)(4) and even the Act itself does not
place any limitation on the entirely separate loan contract between the out-of-state
bank and the borrower.
Second, as discussed above, there are many means by which an out-of-state
bank may issue payday loans to its customers in Georgia. In fact, out-of-state
banks may continue to use agents and agency agreements, including independent,
local payday stores in Georgia. All that is required for out-of-state banks and in-
state payday stores to continue with the exact same business model is for the two
33
entities to alter the agency contract between them so as to provide that the payday
store receives only 50% of the revenue from the payday loan. At most, the Act
removes only one type of agency agreement that in-state payday stores can have
with out-of-state banks. Therefore, the Act is nothing more than a narrow agency
limitation on contracts between in-state payday stores and out-of-state banks.
Third, § 27(a) refers to “State banks” and certainly protects its subsidiaries,
various employees, divisions, and the like. Section 27(a) does not address or
purport to protect an out-of-state bank’s ability to use any local, non-bank vendors
as agents or to have any form of agency relationship with non-bank vendors.
There is also nothing in § 27(a) that preempts a state’s power to regulate local,
non-bank entities operating within the state as independent contractors or agents
for an out-of-state bank. Thus, in the absence of some “clear and manifest”
expression of Congressional purpose that States may not regulate non-bank
payday stores’ agency relationships which effectively enable the non-bank stores
to do what Congress permits out-of-state banks to do, the Georgia statute is not
preempted.
The plaintiffs in this case are essentially asking us to rewrite § 27(a) to read
as follows.
In order to prevent discrimination against State-chartered insured
34
depository institutions, . . . such State bank . . . may, notwithstanding
any State constitution or statute which is hereby preempted for the
purposes of this section, . . . charge on any loan . . . interest . . . at the
rate allowed by the laws of the State . . . where the bank is located and
such State bank may procure these loans using any separate, local, and
non-bank business as an agent and under any agency terms it selects.
We decline to do so. Rather, we decide the express-preemption issue on the basis
of the plain language of the statute as it is written.
For all the above reasons, we conclude that § 27(a) does not expressly
preempt § 16-17-2(b)(4) of the Georgia Act, which precludes in-state payday
stores from acting as agents for out-of-state banks when the payday store retains
the predominate economic interest in the payday loan.
6. Section 16-17-2(d) of the Georgia Act
While the Act exempts out-of-state banks from direct liability in § 16-17-
2(d), we also must discuss the remainder of § 16-17-2(d) because the parties
dispute whether it could be used to prosecute an out-of-state bank as an “aider and
abettor” of the in-state payday store’s violation of the Act. The district court
determined that the Act does not apply to out-of-state banks that “aid or abet” in-
state agents by entering into prohibited agency contracts with them. See
Bankwest, Inc. v. Baker, 324 F. Supp.2d 1333, 1346 n.7 (N.D. Ga. 2004). Section
16-17-2(d) contains the only aid-and-abet provision in the Act and provides:
35
Any person who violates subsection (a) or (b) of this Code section shall
be guilty of a misdemeanor of a high and aggravated nature and upon
conviction thereof shall be punished by imprisonment for not more than
one year or by a fine not to exceed $5,000.00 or both. Each loan
transaction shall be deemed a separate violation of this Code section.
Any person who aids or abets such a violation, including any arbiter or
arbitration company, shall likewise be guilty of a misdemeanor of a high
and aggravated nature and shall be punished as set forth in this
subsection. If a person has been convicted of violations of subsection (a)
or (b) of this Code section on three prior occasions, then all subsequent
convictions shall be considered felonies punishable by a fine of
$10,000.00 or five years imprisonment or both.
Ga. Code. Ann. § 16-17-2(d) (emphasis added).
The parties do not dispute that penalties for any direct violation of the Act
do not apply to out-of-state banks. Subsection (d) of § 16-17-2 begins with the
language that “[a]ny person who violates subsection (a) or (b) . . . shall be guilty of
a misdemeanor . . . .” Id. § 16-17-2(d). Because out-of-state banks are exempt
from liability under subsections (a) and (b), an out-of-state bank is not “any
person” who can violate subsection (a) or (b). See id. §§ 16-17-2(a)(3), (b).
However, in addition to the penalties for a violation of subsections (a) or
(b), the third sentence in subsection (d) goes on to state that “[a]ny person who
aids or abets such [a direct] violation” is also guilty of a misdemeanor. Id. § 16-
17-2(d).
Although the Act grants an exception for liability to out-of-state banks in
36
subsections (a) and (b), and in the first and last sentences of subsection (d), it does
not grant a similar exception in the aid-and-abet sentence in subsection (d). One
argument is that because the Act throughout either exempts, or otherwise has no
application to, out-of-state banks, this Court should conclude that the Georgia
legislature also intended to exempt out-of-state banks from liability as an aider-
and-abettor of the payday stores’ violations of the Act.26 However, when a
legislative body “‘includes particular language in one section of a statute but omits
it in another section of the same Act, it is generally presumed that [the legislative
body] acts intentionally and purposely in the disparate inclusion or exclusion.’”
KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 125 S. Ct. 542, 548
(2004) (quoting Russello v. United States, 464 U.S. 16, 23, 104 S. Ct. 296, 300
(1983)).
We do note that the State of Georgia avows here that it has no intention of
26
The fuller argument is that it is logical to read the “any person” language in subsection
(d) in a consistent manner; that is, because an out-of-state bank is not “any person” for the
purposes of the first or last sentence in subsection (d), an out-of-state bank should not be
considered “any person” in the third sentence of subsection (d). It arguably makes little sense to
grant an exemption for direct liability to out-of-state banks in § 16-17-2(a)(3), again in § 16-17-
2(b), and even in the first and last sentences of § 16-17-2(d), only to take it away as an aider or
abettor in subsection (d) because that one sentence did not repeat the exception. More
importantly, the Georgia Act at the outset, in § 16-17-1(a), defines payday lenders and payday
lending for the purposes of the Act and exempts out-of-state banks from both definitions. The
§ 16-17-1(a) exemption for out-of-state banks applies to all payday lending covered by the Act.
Given the blanket exceptions in both §§ 16-17-1(a) and 16-17-2(a)(3), and the statutory
framework of § 16-17-2(d), the argument is that out-of-state banks may not be prosecuted under
even the aid-and-abet sentence in § 16-17-2(d).
37
prosecuting out-of-state banks as aiders and abettors. We ultimately need not
decide this question of Georgia law because even if the aid-and-abet provision in
subsection (d), as written, permits the State of Georgia to prosecute out-of-state
banks as aiders and abettors, we conclude that subsection (d) is not preempted.
Because Georgia has the power to keep in-state payday stores from acting as
agents for out-of-state banks in the limited circumstances where the stores retain
the predominate economic interest in the payday loan, we conclude that the State
of Georgia is not prohibited from reasonably punishing not only such violators but
also those who aid and abet such violations. Section 27(a) does not preempt state
legislation imposing penalties on: (1) payday stores who enter into illegal agency
agreements; and (2) out-of-state banks who aid and abet such violations. This is
precisely what § 16-17-2(d) does, and, therefore, it is not preempted.
7. Section 16-17-3 of the Georgia Act
Having concluded that § 16-17-2(b)(4)’s prohibition of one type of agency
agreement and § 16-17-2(d)’s penalty for violating the agency-agreement
prohibition are not preempted by § 27(a), we next must consider whether § 16-17-
3 of the Georgia Act is preempted. Section 16-17-3 provides three things: (1) any
person who violates §§ 16-17-2(a) or (b) shall be barred from collecting the
indebtedness created by said loan transaction; (2) said loan transaction is void ab
38
initio; and (3) any person who violates §§ 16-17-2(a) or (b) shall be liable for civil
damages. Specifically, § 16-17-3 states, in relevant part:
Any person who violates subsection (a) or (b) of Code Section 16-17-2
shall be barred from the collection of any indebtedness created by said
loan transaction and said transaction shall be void ab initio, and any
person violating the provisions of subsection (a) or (b) of Code Section
16-17-2 shall in addition be liable to the borrower in each unlawful
transaction for three times the amount of any interest or other charges to
the borrower.
Ga. Code Ann. § 16-17-3. Because out-of-state banks are exempt under §§ 16-17-
2(a) and (b) and, thus, cannot violate subsection (a) or (b), it is clear that the civil-
damage penalty and the collection-of-indebtedness bar in § 16-17-3 do not apply
to out-of-state banks.
The remaining part of § 16-17-3 does impact out-of-state banks. If an in-
state payday store procured a payday loan in the bank’s name through a prohibited
agency agreement with the out-of-state bank, § 16-17-3 does make that payday
loan void in that limited circumstance. Therefore, we must consider whether § 16-
17-3 is preempted by § 27(a).
It is important to understand that the Georgia Act does not void the payday
loan because of the interest rate on the loan. If the payday store procures a high-
interest-rate loan for the out-of-state bank and does not retain over 50% of the
revenue, § 16-17-3 has no application to the out-of-state bank’s high-interest-rate
39
loan. Rather, Georgia has instituted this penalty – voiding the loan – only for
loans procured by payday stores for out-of-state banks under a prohibited agency
agreements. Georgia voids the loan due to the payday store’s violation of
Georgia’s law, § 16-17-2(b)(4), prohibiting certain agency agreements in the
procurement of payday loans.
Section 27(a) does not serve as an all-powerful shield that protects an out-
of-state bank’s loan no matter what procurement or collection conduct the bank’s
agent engages in. As detailed above, even the FDIA reserves an important and
primary role for the states in the regulation of state banks, and the host state’s
fraud and consumer protection laws still apply to out-of-state banks operating in
the host state. If the payday stores’ loan-procurement practices violate the host
state’s consumer protection laws, then Georgia has the power to void the loan
procured by the payday store in an illegal manner.
In the end, we see no reason to preclude Georgia from punishing violations
of its agency rule in the manner it has selected because the violation depends upon
the existence of a prohibited agency agreement and does not occur if the payday
store does not have the predominate economic interest in the payday loan.
Consequently, we conclude that the portion of § 16-17-3 that voids an out-of-state
bank’s loan procured by an in-state agent under a prohibited agency agreement is
40
not preempted.27
F. The Commerce Clause
The out-of-state banks and payday stores also assert that the Georgia Act
violates the dormant aspect of the Commerce Clause. Although the plaintiffs raise
this issue, they devote very little attention to the issue in their briefs. Likewise, we
quickly resolve this issue.
The Commerce Clause states that “Congress shall have Power . . . [t]o
regulate Commerce . . . among the several States . . . .” U.S. CONST. art. I, § 8, cl.
3. Although the Commerce Clause directly limits the power of Congress, it is well
established that the Commerce Clause has a “dormant” or “negative” aspect as
well; that is, that the Commerce Clause serves as “a substantive restriction on
permissible state regulation of interstate commerce.” Dennis v. Higgins, 498 U.S.
439, 447, 111 S. Ct. 865, 870 (1991) (internal quotation marks omitted). “This
‘negative’ aspect of the Commerce Clause prohibits economic protectionism – that
is, regulatory measures designed to benefit in-state economic interests by
27
As of this point, out-of-state banks are well aware of the rules for selecting agents in
Georgia – you may select any independent, non-bank agent you wish as long as you do not allow
the agent to hold the predominate economic interest in the loan. Indeed, upon the enactment of
this agency rule, the out-of-state banks and payday stores promptly filed this lawsuit. Should an
out-of-state bank now elect to procure its payday loans through prohibited agency agreements
and violate this simple, straight-forward agency rule, then the payday loans procured in this
prohibited manner are void.
41
burdening out-of-state competitors.” New Energy Co. of Ind. v. Limbach, 486
U.S. 269, 273-74, 108 S. Ct. 1803, 1807 (1988). The Commerce Clause also
serves to prevent states from “ventur[ing] excessively into the regulation of . . .
[interstate] commerce . . . [and] trespass[ing] upon national interests . . . .” Kassel
v. Consol. Freightways Corp. of Del., 450 U.S. 662, 669, 101 S. Ct. 1309, 1315
(1981) (internal quotation marks omitted).
To determine whether a statutory scheme violates the dormant or negative
aspect of the Commerce Clause, courts employ two tiers of analysis. Brown-
Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 578-79, 106 S.
Ct. 2080, 2084 (1986). If the state scheme “directly regulates or discriminates
against interstate commerce, or when its effect is to favor in-state economic
interests over out-of-state interests, we have generally struck down the statute
without further inquiry.” Id. at 579, 106 S. Ct. at 2084. But, if the discriminatory
state regulation in question “advances a legitimate local purpose that cannot be
adequately served by reasonable nondiscriminatory alternatives,” the state
regulation will be upheld. Limbach, 486 U.S. at 278, 108 S. Ct. at 1810; see also
Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 353, 97 S. Ct. 2434,
2446 (1977). In all other instances, courts have determined that the discriminatory
state regulation violated the dormant or negative aspect of the Commerce Clause.
42
However, if a state regulation only indirectly affects interstate commerce
and regulates both in-state and out-of-state interests equally, courts “have
examined whether the State’s interest is legitimate and whether the burden on
interstate commerce clearly exceeds the local benefits.” Brown-Forman, 476 U.S.
at 579, 106 S. Ct. at 2084. Though the two tiers of analysis are not clearly
distinguishable, “[i]n either situation the critical consideration is the overall effect
of the statute on both local and interstate activity.” Id.The plaintiffs’ argument that the Georgia Act violates the dormant or
negative aspect of the Commerce Clause is without merit. It is undisputed that the
Act makes no attempt to regulate the interest rate out-of-state banks can charge
borrowers in Georgia. In-state banks, however, are limited to Georgia’s 16% cap.
Furthermore, out-of-state banks are still permitted to use in-state payday stores as
agents as long as they do not give the payday store the predominate economic
interest in the payday loan. In-state banks may not use payday stores to charge
more than Georgia’s 16% cap no matter what the in-state banks pay the payday
stores. Therefore, the Act actually places fewer restrictions on out-of-state banks
than it does on Georgia-based banks. Consequently, there is no violation of the
dormant or negative aspect of the Commerce Clause.
G. The Arbitration Provision
43
Section 16-17-2(c)(2) of the Georgia Act declares arbitration clauses in
payday loan contracts void if the payday loan contract is “unconscionable.” See
Ga. Code Ann. § 16-17-2(c)(2). The out-of-state banks and payday stores contend
that the provisions of the Georgia Act dealing with arbitration are preempted by
the Federal Arbitration Act. The plaintiffs, however, lack standing to challenge
the arbitration provisions in the Act.28
For a plaintiff to have standing to sue in federal court, he must allege in his
complaint, or otherwise through the course of the proceedings, “that he has
suffered an injury in fact”; in other words, “some harm to a legal interest that is
actual or imminent, not conjectural or hypothetical.” Bowen v. First Family Fin.
Servs., Inc., 233 F.3d 1331, 1339 (11th Cir. 2000) (internal quotation marks and
citation omitted). In the context of a plaintiff’s challenge to the enforceability of
28
In Jenkins v. First Am. Cash Adv. of Ga., 400 F.3d 868 (11th Cir. 2005), this Court
addressed a situation in which a borrower in Georgia brought a class action against two national
banks, raising state law claims challenging payday loan agreements. The Jenkins Court
addressed a situation in which the borrower and the national bank has signed an Arbitration
Agreement stipulation that all disagreements were governed by the Federal Arbitration Act. This
Court determined that the arbitration agreements in payday loans by national banks were not
unconscionable, and, thus, were enforceable. Id. at 881.
In Jenkins, the appellant also argued that the “underlying payday loan contracts are illegal
and void ab initio under Georgia law.” Id. This Court concluded that because the Arbitration
Agreements were valid, the underlying legality of the payday lending transactions was “an issue
for an arbitrator, not the court, to decide.” Id. at 882.
Because we conclude that the plaintiffs do not have standing to challenge the arbitration
provisions in the Georgia Act, we need not determine what import Jenkins has on those
provisions.
44
an arbitration clause in a loan agreement, we have held that the plaintiff must
allege that an arbitration between the lender and the borrower is imminent or
“certainly impending.” Id. at 1340 (quoting Whitmore v. Arkansas, 495 U.S. 149,
158, 110 S. Ct. 1717, 1724-25 (1990)). There simply being “a ‘perhaps’ or
‘maybe’ chance that the arbitration agreement will be enforced . . . is not enough
to give [the plaintiffs] standing to challenge its enforceability.” Id. It follows that
in order to challenge the validity of a statute that tends to undermine the
enforceability of an arbitration agreement, a party must show harm to its interest in
enforcing the agreement that is actual or imminent. The party seeking an
injunction against enforcement of the statute must show that arbitration, which is a
prerequisite to application of the statute, is imminent or certainly impending. It is
not enough that there may be arbitration and that the statute may be applied if
there is.
The plaintiffs have not met their burden in this regard. They have not even
alleged in their complaint or in their motion for a preliminary injunction that any
breaches of the loan agreements have occurred or are imminent. They have not
alleged that if there are breaches there will be arbitration. The agreement gives
either party the right to elect arbitration but does not require disputes to be
45
arbitrated if neither party elects it.29
Maybe there will be breaches, and maybe in connection with those breaches
someone will elect arbitration, and maybe if that happens the Georgia statutory
provision in question will be asserted and applied. But maybe is not enough. See
id. Having failed to demonstrate imminent or certainly impending injury from Ga.
Code Ann. § 16-17-2(c)(2), the out-of-state banks and payday stores lack standing
to challenge this provision. It necessarily follows that the district court did not
abuse its discretion in denying them a preliminary injunction against enforcement
of the provision.
The Act contains another provision that refers to arbitration. Specifically,
the aiding or abetting provision of § 16-17-2(d) mandates that “any arbiter or
arbitration company” that aids or abets a violation of the Act will be subject to
sanctions under the Act. The out-of-state banks and payday stores argue that § 16-
17-2(d) is preempted by the FAA because it is “repugnant” to the FAA.
It is not clear from the Georgia Act what action by an arbitrator would
amount to aiding or abetting a violation of the Act, nor is it apparent why the
Georgia General Assembly saw fit to specially include arbitrators in the aiding or
29
We are referring specifically to the arbitration portion of the loan agreement between
Bankwest, Advance America, and the borrower. As we stated before, we have been led to
believe that this agreement is typical.
46
abetting provision. Although we question the validity of a regulation that would
subject an arbitrator to liability merely for deciding a payday loan dispute in
accordance with the arbitration clause in a payday loan contract, we need not
decide that issue, because neither the out-of-state banks nor the payday stores are
arbitrators.
The plaintiffs in this case will never be prosecuted or sued as arbitrators for
acting in contravention of the Act. Therefore, the out-of-state banks and payday
stores have asserted no injury-in-fact particular to them, see Steel Co. v. Citizens
for a Better Env’t, 523 U.S. 83, 103, 118 S. Ct. 1003, 1016 (1998), nor have they
alleged facts sufficient to stand in the place of the arbitrators. See Powers v. Ohio,
499 U.S. 400, 410-11, 111 S. Ct. 1364, 1370-71 (1991) (holding that in order for a
litigant to bring an action on behalf of a third party, the litigant must demonstrate
that (1) he has “suffered an ‘injury in fact,’ thus giving him or her a ‘sufficiently
concrete interest’ in the outcome of the issue in dispute”; (2) he has “a close
relation to the third party”; and (3) there is “some hindrance to the third party’s
ability to protect his or her own interests” (internal citations omitted)). In short,
the out-of-state banks and payday stores lack standing to challenge the arbitration
provisions.
V. CONCLUSION
47
For all the above reasons, we conclude the district court did not abuse its
discretion in denying a preliminary injunction.
AFFIRMED.
48
CARNES, Circuit Judge, dissenting:
Congress enacted a statute providing that any state-chartered bank may
“charge on any loan . . . interest . . . at the rate allowed by the laws of the State . . .
where the bank is located.” 12 U.S.C. § 1831d(a). Everyone agrees Congress
intended to ensure that the maximum interest rate a bank like BankWest, which is
chartered in South Dakota, can charge on loans made in another state is the higher
rate permitted under South Dakota law, not the lower rate that the other state
prefers. To prevent states from interfering with the right to charge higher interest
rates that it created, Congress explicitly provided that the right exists
“notwithstanding any State constitution or statute which is hereby preempted for
the purposes of this section.” Id. Congress probably thought that using broad
language to create the federal right and inserting a clear and unequivocal
preemption clause to protect that right from state interference would be enough. If
so, it underestimated the State of Georgia’s determination to evade federal law and
the willingness of this Court to permit states to do so.
The majority opinion attempts to paint this case as one in which a bunch of
cunning cash advance stores have purchased the authority of out-of-state banks as
part of their scheme to get around Georgia’s usury laws. In this picture, BankWest
and other out-of-state banks are not real players but instead only passive pawns
49
that lease their charters to the cash advance stores; those stores are actually the
lenders, perform all the critical functions, carry most of the risk, and to use the
majority’s phrase “effectively do all the work.” Ante, at 6. That’s not a pretty
picture, but neither is it one the record in this case supports.
The record shows that it is the banks, and not the cash advance stores, that
perform the critical loan functions. The parties agree that BankWest and Advance
America are exemplars of the out-of-state banks and their in-state agents, and the
record contains the contractual agreement between them. Under that agreement, it
is BankWest that provides all of the funds that are loaned. Advance America
provides none. It is BankWest that determines which borrowers will receive a
loan because, as an undisputed affidavit establishes, BankWest “in its sole
discretion, determines all underwriting criteria that must be satisfied by a
prospective borrower.” Advance America has no control over the underwriting
criteria that BankWest applies to these loans.1
1
The majority opinion says that Bankwest uses “Tele-Track,” a third-party loan-
processing agent to approve or disapprove loans, and that Advance America also uses Tele-Track
in states where Advance America makes loans in its own name. Ante, at 8 & n.5. We are not
told the significance of that fact. It may be that Bankwest and Advance America also use the
same brand of copy machine or the same long-distance carrier, but so what?
The majority may be hoping that some readers will infer from the fact that Tele-Track is
commonly hired to apply a lender’s loan criteria that Bankwest and Advance America use the
same loan criteria. The record provides no support at all for that inference; it is silent about what
underwriting criteria Advance America uses when making loans itself instead of acting as an
50
The affidavits show that “BankWest also establishes, in its sole discretion,
the terms and features of the loans, including the loan amounts, fees and charges,
interest rate, repayment terms, credit limits and credit standards.” By contrast,
“Advance America has no control or authority over the loan approval process,
underwriting criteria, credit terms, credit standards or the terms and conditions of
the loans between BankWest and its Georgia borrowers.” Not only that, but
Advance America is not even a party to the loan agreement. Instead, “[t]he Loan
Agreement is a promissory note between the borrower and BankWest, which,
among other things, clearly states that BankWest is the lender on the loan, and
obligates the borrower to repay the loan with interest to BankWest on or before the
stated maturity date.” Nor does Advance America have a legal right to the loan
receivables. Instead, “[t]he loan receivables are BankWest’s assets, and BankWest
records them as such on the bank’s financial statements.”2
agent for a lender. The record, however, does show something on that subject about three other
cash advance stores that serve as Georgia agents for out-of-state banks. It shows that when those
stores are located in states that allow them to make this type of loan directly to consumers, they
use different underwriting criteria than the out-of-state banks use in Georgia.
2
In what is more a questionable implication than a misrepresentation, the majority
opinion says that: “Accordingly, the local payday stores in this case have entered into
arrangements with out-of-state banks to serve as their agents in Georgia.” Ante, at 5. That
sounds as though the payday stores sought out the banks. There is nothing in the record to show
who sought out whom. It would be just as accurate to say that the banks entered into
arrangements with those stores to serve as the banks’ agents in Georgia. In fact, an affidavit in
the record does put it that way: “BankWest contracted with Advance America to act as
BankWest’s authorized fiscal agent in Georgia . . . .”
51
Advance America bears no risk of loss of principal, because it advances
none of the principal. BankWest advances all of the principal and bears all of the
risk that principal will be lost. The only risk of loss that Advance America has is
for part of the loan revenues (the finance charges).
The way the contractual loss assignments have played out in the real world
of cash advance loans in Georgia is that Bankwest has borne twice as much of the
loan loss as Advance America. The record contains this sworn statement about
the actual loss data for the fourteen-month period just before the filing of the
motion for injunction: “For the period of January 2003 through February 2004,
the Loss Rate Standard on the aggregate portfolio of loans made by BankWest to
Georgia borrowers was approximately 12.5%. Thus, BankWest was responsible
for approximately 68% of all loan losses incurred during that period.”3 So,
Advance America suffered less than one-third of the losses, BankWest more than
two-thirds.
The facts, then, are that BankWest is the true lender. It is not only identified
as such in the loan documents, but it also performs all of the critical loan decision-
3
Maybe a little more explanation will help. BankWest was responsible for loan losses up
to the first 8.5 percent of the finance charges. Because the loan loss was 12.5 percent of the
finance charges, and BankWest was responsible for the loan loss on the first 8.5 percent of the
finance charges, it shouldered 68 percent of the loan loss for that fourteen-month period. (8.5%
÷ 12.5% = 68%).
52
making functions, supplies all of the funds for the loan, is the only one exposed to
any loss of principal, and has borne most of the loan losses that have actually
occurred.
The factual spinning and loaded language of the majority opinion aside, the
real defect in that opinion is its express preemption analysis. The Supreme Court
has instructed us that: “In deciding whether a federal law pre-empts a state statute,
our task is to ascertain Congress’ intent in enacting the federal statute at issue.
Pre-emption . . . is compelled [when] Congress’ command is explicitly stated in
the statute’s language . . . .” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 103 S.
Ct. 2890, 2899 (1983) (internal quotations omitted).4 Here, Congress’ preemptive
command is explicitly stated in the statutory language. Yet the majority decision
4
There is, to be sure, an “assumption that the historic police powers of the states are not
superceded by federal law unless preemption is the clear and manifest purpose of Congress,”
Cliff v. Payco Gen. Am. Credit, Inc., 363 F.3d 1113, 1122 (11th Cir. 2004), but just as surely,
that “‘assumption’ of non-preemption is not triggered when the State regulates in an area where
there has been a history of significant federal presence,” United States v. Locke, 529 U.S. 89,
108, 120 S. Ct. 1135, 1147 (2000). Usury laws are an exercise of the historic police powers of
the states, but there has been a history of significant federal presence in banking, particularly
interest rates on a national scale. Indeed, a heavy federal presence in the field and extensive
federal regulation of national interest rates extends back at least as far as the 1884 amendments to
the National Bank Act of 1864. See Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S.
25, 32–34, 116 S. Ct. 1103, 1108–09 (1996); see also Franklin Nat’l Bank of Franklin Square v.
New York, 347 U.S. 373, 375–76, 74 S. Ct. 550, 552–53 (1954). Section 27(a) of the FDIA is
part of that federal scheme, and, in fact, mirrors § 85 of the NBA. Compare 12 U.S.C.
§ 1831d(a), with 12 U.S.C. § 85. Because the Georgia Act attempts to interfere with the federal
right of out-of-state banks to apply their charter-state interest rates nationally, it is not entitled to
the benefit of a presumption against preemption.
53
does not obey that clear, compelling command.
The relevant portion of FDIA § 27(a) plainly says that “State-chartered
insured depository institutions . . . may, notwithstanding any State constitution or
statute which is hereby preempted for the purposes of this section, . . . charge on
any loan . . . interest . . . at the rate allowed by the laws of the State . . . where the
bank is located.”5 12 U.S.C. § 1831d(a) (emphasis added). The question is not
whether Congress intended to preempt state laws inconsistent with the right it
created on behalf of out-of-state banks. The preemptive command could not be
clearer. To the extent that “any State constitution or statute” attempts to define,
condition, impinge upon, regulate, restrict, or otherwise affect the right of an out-
of-state bank to charge an interest rate permitted under the laws of its charter state,
5
Section 27(a) states in full:
In order to prevent discrimination against State-chartered insured depository
institutions, including insured savings banks, or insured branches of foreign banks with
respect to interest rates, if the applicable rate prescribed in this subsection exceeds the
rate such State bank or insured branch of a foreign bank would be permitted to charge in
the absence of this subsection, such State bank or such insured branch of a foreign bank
may, notwithstanding any State constitution or statute which is hereby preempted for the
purposes of this section, take, receive, reserve, and charge on any loan or discount made,
or upon any note, bill of exchange, or other evidence of debt, interest at a rate of not more
than 1 per centum in excess of the discount rate on ninety-day commercial paper in effect
at the Federal Reserve bank in the Federal Reserve district where such State bank or such
insured branch of a foreign bank is located or at the rate allowed by the laws of the State,
territory, or district where the bank is located, whichever may be greater.
12 U.S.C. § 1831d(a).
54
that state law is preempted.
Because the scope of the preemption is coextensive with the federal right
created, the question is the scope of the federal right. The key statutory word
defining the scope of the federal right, the word upon which this issue turns, is
“any.” Section 27(a) says that state-chartered insured depository institutions may
charge “on any loan” interest at the rate allowed by the laws of their charter state.
18 U.S.C. § 1831d(a) (emphasis added). “Any” is a powerful word.
Both the Supreme Court and this Court have made clear that “any” does not
mean “some” or “all but a few,” it means “all.” For example, in United States v.
Gonzales, 520 U.S. 1, 117 S. Ct. 1032 (1997), the question was whether the
statutory phrase “‘any other term of imprisonment’ means what it says or whether
it should be limited to some subset of prison sentences.” Id. at 5, 117 S. Ct. at
1035 (internal quotation omitted). Because of the natural, expansive meaning of
the word “any,” and the absence of any limiting language in the statute, the Court
concluded that “any term of imprisonment” meant all terms of imprisonment,
without exception. Id.Other decisions of the Supreme Court and this Court emphasize and re-
emphasize that “any” does not mean some, or most; it means all. See, e.g., United
States v. Alvarez-Sanchez, 511 U.S. 350, 358, 114 S. Ct. 1599, 1604 (1994)
55
(noting that a statute referring to “any law enforcement officer” includes “federal,
state, or local” officers); CBS Inc. v. PrimeTime 24 Joint Venture, 245 F.3d 1217,
1223 (11th Cir. 2001) (holding that “‘any termination’ in the Improvement Act’s
§ 1005(a)(2)(B)(iii) grandfather clause means all terminations of any kind”);
Coronado v. Bank Atl. Bancorp, Inc., 222 F.3d 1315, 1321–22 (11th Cir. 2000)
(holding that immunity under 31 U.S.C. § 5318(g)(3) for “any person under any
law or regulation of the United States or any constitution, law, or regulation of any
State” refers to all persons and all laws); Merritt v. Dillard Paper Co., 120 F.3d
1181, 1185–86 (11th Cir. 1997) (deciding that “participat[ion] in any manner” as
used in anti-retaliation provision means “all” kinds of participation, even
involuntary trial testimony).
In this case, we should interpret the statutory phrase “any loan” to mean all
loans without exception, just as the Supreme Court in Gonzales interpreted the
statutory phrase “any other term of imprisonment” to mean all other terms of
imprisonment without exception, 520 U.S. at 5, 117 S. Ct. at 1035; just as the
Supreme Court in Alvarez-Sanchez interpreted “any law enforcement officer” to
mean all law enforcement officers without exception, 511 U.S. at 358, 114 S. Ct.
at 1604; and just as we in Merritt interpreted “any termination” to mean all
56
terminations of any kind without exception, 120 F.3d at 1185–86.6
Because loans that out-of-state banks make through in-state agents are
within the broad scope of the term “any loan,” § 27(a) preempts state laws that
attempt to regulate or restrict the interest rates that may be charged on those loans.
In other words, § 27(a) preempts what the State of Georgia has done. It is as
though the Georgia General Assembly rewrote the key language of that federal
statutory provision by adding a sentence, so that it reads:
State-chartered insured depository institutions . . . may . . . charge on any
loan . . . interest . . . at the rate allowed by the laws of the State . . . where
the bank is located. But they may not do so through agents unless the bank
receives the majority of the proceeds generated by the loan.
Preemption would be a meaningless doctrine if states could effectively rewrite
federal statutes by adding conditions or limitations. In this instance, the rewrite
would change the established, all-encompassing meaning of “any” as it is used in
§ 27(a). Language that limits the meaning of congressionally chosen terms must
6
The Supreme Court’s recent decision in Small v. United States, 544 U.S. ___, 125 S. Ct.
1752 (2005), does not dictate a different interpretation here. In that case, the Court dealt with 18
U.S.C. § 922(g)(1)’s prohibition on the possession of firearms by persons who had been
“convicted in any court” of a felony. Id. at ___, 125 S. Ct. at 1754. The Court began with “the
legal presumption that Congress ordinarily intends its statutes to have domestic, not
extraterritorial, application.” Id. at ___, 125 S. Ct. at 1755. Finding “no convincing indication to
the contrary” of that presumption, the Court concluded that § 922(g)(1)’s reference to convictions
entered in “any court” means convictions entered in a domestic court. Id. at ___, 125 S. Ct. at
1756. No such presumption applies here where all the parties and transactions involved in this
case are domestic.
57
come from Congress, not from the states. Just as a state cannot say for purposes of
§ 27(a) what a “State-chartered insured depository institution” is, it cannot say
when such an institution is the entity “charg[ing]” the interest on a loan, and it
cannot say what “any loan” is. Those are federal statutory terms. The power to
define or redefine federal statutory terms is the power to evade or eviscerate these
terms; it is the power to preempt the preemptive force of federal statutes, and it is a
power the states do not have.
With mimicry that would make a mockingbird blush, the majority opinion
has lifted the analytical device from the preceding paragraph of this opinion and
inserted different words in an attempt to show that Congress did not envision the
particular evasion enacted by Georgia. See ante, at 34–35. The majority’s point, I
suppose, is that Congress did not say out-of-state banks could use in-state agents
under the specific contractual terms that BankWest uses Advance America. Of
course it didn’t. It is impossible to anticipate all the ways in which business will
be done, just as it is impossible to anticipate all the ways in which states will
attempt to thwart the preemptive will expressed in a federal statute. That is why
Congress chose to use the all-encompassing term “any” in § 27(a) instead of more
limited terms such as “some,” “many,” or “most.”
Faced with the broad language of § 27(a), the majority opts to deny the
58
undeniable. Even though the language the federal statute uses is broad, the
statute’s application is, the majority insists, “quite narrow.” Ante, at 31. The
majority lists all the activities of out-of-state banks that Congress did not
specifically mention in § 27(a), which means under the “quite narrow” view that
Georgia can regulate those activities into oblivion. The targetable activities that
are left unprotected by the preemption clause of § 27(a), the majority insists,
include “collateral activity associated with the loan, such as marketing,
advertising, solicitation, or any aspect of the loan procurement process” and
“collection practices,” and the matter of “separate contracts between out-of-state
banks and in-state vendors.” Ante, at 29–30.
So anemic are the provisions of the federal act under the majority’s “quite
narrow” view that states can prohibit out-of-state banks from using in-state agents
at all, because § 27(a) says “nothing about agents, much less in-state, non-bank
agents of out-of-state banks,” and because it “directly restricts only interest-rate
limitations and cannot be so expanded to cause indirect preemption of the agency
agreement between in-state entities, such as payday stores, and out-of-state
banks.” Ante, at 32 n.25. In other words, the majority’s “quite narrow” view is
that states may thwart the preemption clause of § 27(a) by regulating agency
relationships or prohibiting preferred forms of them, and by going after the
59
“collateral activity associated with” making loans, activities that are essential for
an out-of-state bank to function in another state. See ante, at 29–30 (emphasis
omitted).
And that is what Georgia has done. The theory with which Georgia has
cloaked its evasive purpose is that where the in-state agent has the predominant
economic interest in a loan, which Georgia considers to be the right to more than
fifty percent of the loan-generated revenues, the in-state agent is the actual lender,
not the out-of-state bank. See Ga. Code Ann. § 16-17-2(b)(4) (“A purported agent
shall be considered a de facto lender if the entire circumstances of the transaction
show that the purported agent holds, acquires, or maintains a predominant
economic interest in the revenues generated by the loan.”); see also Ga. Code Ann.
§ 16-17-6. Georgia’s purpose is to get at the agent as a way of getting at the
principal. Controlling a corporation’s agents controls the corporation, just as
binding a man’s arms and legs binds the man.
If Georgia may do as it pleases to the in-state agents of out-of-state banks,
then Georgia may do as it pleases to the out-of-state banks. Recognizing that, the
state takes the position that federal rights of corporations may be conditioned,
truncated, or abrogated by state laws so long as those laws are brought to bear on
the agents through which the corporations act. And the majority has written that
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untenable position into the law of this circuit. Section 27(a) grants out-of-state
banks the authority to make loans in Georgia at the interest rates they may charge
in their charter states. The State of Georgia may no more prevent that authority
from being exercised through in-state agents than it may prevent that authority
from being exercised on even-numbered days.
Not content with gutting the preemption clause of the federal act, the
majority also tries to soft-peddle the plain language of the Georgia Act to make it
seem as though all the Act does is affect one little bitty aspect of the agency
relationship between out-of-state banks and in-state agents. That is not the reality.
The reality is that Georgia has acted to strip from out-of-state banks the right that
§ 27(a) gives them, if those banks structure their business in the way that they
think best in light of business considerations and market forces. What Georgia has
said is that the out-of-state banks Congress has specifically protected from state
usury laws will not be protected by § 27(a) unless those banks quit doing business
the way they prefer and start doing business the way the state prefers. And it just
so happens that Georgia prefers that out-of-state banks covered by § 27(a) not do
business in the way those banks have chosen to do it. What a coincidence.
Of course, Georgia does not actually care one whit about how the banks do
business. All the state is concerned with is whether the banks exercise their
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federal statutory right to charge § 27(a) interest rates. The banks and their in-state
agents can structure their relationship any way they want and can divide up
revenue according to the phases of the moon insofar as Georgia is concerned, IF
only the banks will give up their federal right to charge higher interest rates than
state law allows. Georgia has effectively put a price on the exercise of the federal
statutory right, the price being that banks cannot structure their business
relationships the way they have chosen. By slapping that price tag onto § 27(a),
Georgia has conditioned the exercise of a federal right on compliance with the
state’s dictates, even though the federal statute granting the right explicitly
preempts state laws on the subject. And the majority is letting Georgia get away
with doing that.
The authority the State of Georgia claims in this regard would have no limit.
If Georgia can decide that lending at charter-state interest rates is prohibited where
the in-state agent has the predominant economic interest in the loan-generated
revenue—that “any loan” in the federal statute does not mean all loans—it can
decide that lending is prohibited where the in-state agent has an interest in one-
fourth of the loan-generated proceeds, or in one-tenth of them, or where the in-
state agent has any interest in them at all. Under the majority’s “quite narrow”
view of the preemptive force of § 27(a), Georgia could simply declare that, under
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its own definition of the federal statutory terms, any in-state agent of an out-of-
state bank is the de facto lender, not the bank. The majority embraces that
position.7
None of this is to say that Georgia may not reasonably regulate in-state
agents of out-of-state banks, so long as it does so on the same terms that it
regulates agents of in-state banks. For example, if Georgia wants to forbid banks
from using agents who have been convicted of felonies, nothing in § 27(a) would
prevent it from doing so. But that prohibition would have to be interest-rate
neutral, which is to say that Georgia’s regulation of agents may not be keyed to a
bank’s exercise of its § 27(a) interest-rate authority. Georgia may not forbid an
out-of-state bank charging § 27(a) protected rates from using any arrangement that
it permits a bank not charging those rates to use. More specifically, Georgia may
not forbid, restrict, or condition the use of agents generally, or particular
categories of agents, as a way of preventing an out-of-state bank from using those
agents to exercise its federal statutory right to charge higher interest rates.
Yet that is precisely what Georgia has done. Georgia does not generally
7
The majority states: “Indeed, the language of § 27(a) says nothing about the loan
procurement or collection practices by agents and nothing about agents, much less in-state, non-
bank agents of out-of-state banks. Instead, § 27(a) directly restricts only interest-rate limitations
and cannot be so expanded to cause indirect preemption of the agency agreement between in-
state entities, such as payday stores, and out-of-state banks.” Ante, at 32 n.25 (emphasis in
original).
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forbid the use of agents by banks when the agents have a “predominant economic
interest” in loan-generated revenue. It permits banks to use agents regardless of
how the economic interests are divvied up by them, so long as they do not charge
the higher interest rates that § 27(a) permits. If BankWest were not attempting to
exercise the higher interest rate authority Congress has given it, Georgia’s law
would not apply regardless of whether Advance America received half, three-
fourths, nine-tenths, or all of the loan-generated revenues. Georgia does not care
how much of the revenue an agent receives so long as the agent is not used in the
exercise of an out-of-state bank’s federally protected right to charge higher interest
rates than state law allows. Only because BankWest’s arrangement with Advance
America serves to further its federally granted § 27(a) authority does Georgia want
to “regulate” that relationship. It wants to “regulate” principal-agent relationships
used to effectuate § 27(a) rights in the same way that the American Temperance
League wanted to “regulate” alcohol.
Don’t get me wrong. The fact that § 27(a) preempts the Georgia Act’s
attempt to restrict an out-of-state bank’s ability to export interest rates does not
mean that any transaction where an out-of-state bank associates with a non-bank
agent in Georgia is protected, even if the relationship is clearly a sham. If, under
federal law, a transaction is not actually a loan from an out-of-state bank within
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the meaning of § 27(a), then the bank does not have the right to export its charter
state’s interest rate under § 27(a). That is, however, an issue that must be
answered under federal law, not under state law. Georgia has not argued that the
loans involved in this case are shams under federal law, but instead has attempted
to use state law to redefine federal statutory terms, which is something it may not
do.
I recognize the serious policy concerns that motivated the Georgia General
Assembly to enact this legislation, and if I were in Congress I might well support
an amendment of § 27(a) on those grounds. But I am not in Congress. Neither are
my two colleagues who are in the majority in this case. Our duty is to interpret the
laws that Congress has enacted, not to shape them to our policy views through a
“quite narrow” interpretation. Any complaints about the policy effects of § 27(a)
are, to borrow a phrase from the Supreme Court in another banking case, “better
addressed to the wisdom of Congress than to the judgment of this Court.”
Marquette Nat’l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299,
319, 99 S. Ct. 540, 550–51 (1978).
Because § 27(a) expressly preempts the Georgia Act with regard to its
regulation of interest rates charged by out-of-state banks, I would hold that the
out-of-state banks and their in-state agents have met their burden of demonstrating
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the first prong of the preliminary injunction determination, which is a substantial
likelihood of success on the merits. As for the second prong, the district court
found, and the State of Georgia does not dispute, that the banks and their agents
have sufficiently demonstrated irreparable harm.
In analyzing the third prong, the district court found that the threatened
injury to the out-of-state banks and their in-state agents did not outweigh the
damage the injunction would cause to the citizens of the State of Georgia, and as a
result that they had not met their burden on this prong. In the three sentences
devoted to this topic, the district court summarily found that “[a]n injunction
against enforcement of the Act would permit payday lenders to continue collecting
exorbitant amounts of interest from thousands of Georgia citizens who can ill
afford it.” Bankwest, Inc. v. Baker, 324 F. Supp. 2d 1333, 1357 (N.D. Ga. 2004).
That finding is defensible only if one assumes, as the district court had concluded,
that the Georgia Act is not expressly preempted by § 27(a). But it is preempted,
and that changes things. In the words of the Fifth Circuit, “[s]ince Congress
expressly preempted this area of regulation, the states are not injured by the
injunction” and “there is no injury to the states to weigh.” See Trans World
Airlines, Inc. v. Mattox, 897 F.2d 773, 784 (5th Cir. 1990), holding recognized as
limited on other grounds by Johnson v. Baylor Univ., 214 F.3d 630 (5th Cir.
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2000).
The same analysis holds true with regard to the fourth prong of the
preliminary injunction analysis. Issuing an injunction to ensure the proper
operation of federal law is not adverse to the public interest. See id. The public
interest is best served by applying federal law as directed by the express language
of § 27(a).
Because the out-of-state banks and their in-state agents have met their
burden on each of the four prongs of the preliminary injunction analysis, the
district court abused its discretion in failing to grant them a preliminary injunction.
Accordingly, I dissent.
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