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Arkansas payday lenders to stop loans
April 8. 2008
Most payday lending companies in Arkansas say they will close or stop issuing high-interest loans to avoid being sued for violating the state constitution, Attorney General Dustin McDaniel said Tuesday.
McDaniel said his office received word from 52 companies that they will comply with a cease-and-desist letter he sent them last month. McDaniel said he believes another seven companies have stopped issuing high-interest payday loans.
The 59 companies account for almost all the 156 payday lending locations targeted by McDaniel.
On March 18, the attorney general sent the companies a letter stating they would face the likelihood of lawsuits if they didn't shut down immediately and forgive customers' debts. McDaniel based his actions on two recent state Supreme Court rulings he said make clear that the high interest rates violate the state constitution and the Arkansas Deceptive Trade Practices Act.
Through a typical payday loan in Arkansas, someone writing a check for $400 would receive about $350. The lender would keep the check for about two weeks without cashing it, giving the customer time to buy back the check.
The $50 charge on the $350 loan for 14 days equates to an annual interest rate of 371 percent, well above Arkansas' 17 percent limit.
"I think the vast majority of them are just shut down because the vast majority are one owner, one store small-time operations," McDaniel said.
Not all of the companies targeted by McDaniel will shut down. Advance America, which operates 30 payday lending locations in the state, said it will restructure its business to comply with the law.
Advance America spokesman Jamie Fulmer said the company will not offer any new loans while it reviews its options but will temporarily offer interest-free loans to its existing customers.
"It's our intent and desire to offer some sort of short-term loan product to consumers in Arkansas, although the details haven't been worked out," Fulmer said.
McDaniel indicated that there are still other payday lenders that his office plans on targeting. Those that shut down aren't safe from future legal action, he said.
"As badly as I'm concerned about people who need $50, $100 or $250, I'm more concerned about them paying $1,000 or more to try and repay it," McDaniel said.
The Arkansas State Board of Collection Agencies will continue to license payday lenders and check cashers, executive director Peggy Matson said.
The 1999 Check Cashers Act defined the borrowing charges levied by payday lenders as fees and not interest. A lawsuit challenging the constitutionality of the act is pending before Arkansas' Supreme Court.
"Operating in compliance with the Check Cashers Act doesn't necessarily shield a business from the lawsuits the attorney general is contemplating," Matson said.
The 156 payday lenders targeted make up more than half of the 277 check cashers licensed in the state. McDaniel's office focused on companies that offer "deferred presentment loans." The remaining 121 businesses cash checks for a fee but do not enter into delayed deposit agreements.
By ANDREW DeMILLO
Source: http://www.cnbc.com/id/24018980/for/cnbc/
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