## Facts

- FDIC-insured, state-chartered banks partnered with non-bank payday-loan agents operating Georgia storefronts to offer short-term, single-advance loans (generally up to $500) with very high effective APRs.
- The banks set loan terms, approved/denied applications, funded loans, and received repayments; the agents marketed, processed, and serviced loans and evaluated borrowers using systems such as Tele-Track.
- Agents were compensated as a percentage of loan revenues; in at least one program, the agent received most of the revenue, leaving a minority share to the bank.
- Loan documents included Truth in Lending Act disclosures and arbitration clauses waiving jury trial and barring class actions.
- Georgia enacted a payday-lending statute creating civil/criminal penalties, broadly defining payday lending, and adding “de facto lender” provisions focused on which entity held the “predominant economic interest” in the loans, aimed at preventing non-banks from using bank partnerships to avoid state restrictions.
- The banks and agents sued state officials to enjoin enforcement, arguing the statute was federally preempted and unconstitutional; a temporary restraining order briefly delayed enforcement while the court considered motions.

## Issues

1. Whether plaintiffs showed a substantial likelihood that federal banking law (including the FDIA’s interest-rate exportation rules for FDIC-insured state banks) preempted Georgia’s payday-lending statute.
2. Whether plaintiffs showed a substantial likelihood that the statute violated the Dormant Commerce Clause.
3. Whether plaintiffs showed a substantial likelihood that the statute was preempted by the Federal Arbitration Act to the extent it affected arbitration clauses and remedies.
4. Whether plaintiffs showed a substantial likelihood that the statute’s “de facto lender”/“predominant economic interest” provisions were unconstitutionally vague.
5. Whether plaintiffs showed a substantial likelihood that provisions affecting pre-effective-date loans were unlawfully retroactive or impaired contracts.
6. Whether plaintiffs satisfied the remaining preliminary-injunction factors (irreparable harm, balance of harms, and public interest).

## Decision

- The court denied the motions for a preliminary injunction and dissolved the temporary restraining order.
- Plaintiffs failed to carry their burden—especially on the requirement to show a substantial likelihood of success on the merits of preemption and constitutional claims.
- The court found the statute’s structure and exemptions indicated it principally targeted non-bank payday-lending conduct and “de facto lender” arrangements, not legitimate bank lending powers protected by federal law.
- The court concluded plaintiffs did not show the statute discriminated against interstate commerce or imposed an undue burden in light of Georgia’s consumer-protection interests.
- The court declined to find FAA preemption on the preliminary record because the statute regulated payday-lending practices generally rather than singling out arbitration.
- The court rejected the vagueness challenge at this stage, finding the statute provided workable guidance (including economic-interest and program-structure factors) for identifying the real lender.
- The court determined plaintiffs did not show unconstitutional retroactivity or clear contract impairment sufficient to warrant preliminary relief.
- The balance of harms and public interest weighed against enjoining a democratically enacted consumer-protection statute; asserted economic harms did not justify extraordinary relief.

## Legal Principles

- A preliminary injunction requires proof of (1) substantial likelihood of success on the merits, (2) irreparable injury absent relief, (3) balance of harms favoring the movant, and (4) consistency with the public interest; the burden is especially heavy when enjoining enforcement of a state statute.
- Federal banking statutes do not automatically occupy the entire field of consumer-lending regulation; state laws of general application may apply unless they conflict with federal law or significantly interfere with federally granted banking powers.
- Conflict preemption requires an irreconcilable conflict or an obstacle to federal objectives; on a preliminary record, a state statute focused on non-bank actors with the predominant economic interest in “bank” loans may not be shown to conflict with federal rate-exportation rules.
- Dormant Commerce Clause claims require a showing of discrimination against interstate commerce or an undue burden not justified by legitimate local interests; consumer-protection measures aimed at in-state harms are less likely to be enjoined absent clear discrimination.
- The FAA preempts state rules that impose special burdens on arbitration; general regulatory schemes directed at underlying conduct, rather than arbitration itself, are less likely to be preempted on an initial record.
- Vagueness doctrine requires fair notice and limits on arbitrary enforcement; a statute can survive if it provides intelligible standards, particularly when applied to sophisticated regulated entities.

## Conclusion

The court refused to preliminarily enjoin Georgia’s payday-lending statute because the banks and their non-bank agents did not show a substantial likelihood that federal banking law, the Commerce Clause, the FAA, due process vagueness doctrine, or retroactivity/contract-impairment principles would invalidate the statute, and the public interest favored allowing the state’s consumer-protection law to take effect pending fuller litigation.


BankWest, Inc. v. Baker, 324 F. Supp. 2d 1333 (N.D. Ga. 2004)