Future of payday lenders undetermined
Arkansas Attorney General Dustin McDaniel has recently demanded that all payday lenders in the state close their doors for good. The future of local stores in Highland and Batesville are uncertain but currently continue to do business.
McDaniel defines payday lenders as businesses that grant short-term loans that charge exorbitant amounts of interest.
According to McDaniel, these interest rates violate the Arkansas Constitution's usury limit and the Arkansas Deceptive Trade Practices Act.
"It is the position of this office that you must cease and desist your payday lending practices. In addition, I hereby demand that you void any and all current and past-due obligations of your borrowers and refrain from any collection activities related to these payday loans," McDaniel said in a March 18 letter he sent to lenders.
Arkansas law states that the maximum amount of interest on any contract is not to exceed five percent per year above the Federal Reserve Discount Rate on general loans.
The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility.
In the case of consumer loans and credit sales, McDaniel says that the interest rate cannot be higher than 17 percent per year and that all outstanding debts that have higher rates are also void.
McDaniel goes on to confront the payday lenders potential defense, reliance on the licensure under the Arkansas Check-Cashers Act of 1999, part of which has now been deemed unconstitutional.
McDaniel also cited two other cases that resulted in the Arkansas Supreme Court's decision that payday lending is unconscionable and deceptive. The court went on to say that payday lending is additionally unconstitutional.
"These businesses have made a lot of money on the backs of Arkansas consumers, mostly the working poor. Charging consumers interest in the range of 300 to 500 percent is unlawful and unconscionable, and it is time that it stops," McDaniel said. "It is my hope that they comply with my demand, but if they do not, I stand ready to take them to court."
The News spoke with Chief Operating Officer Ginger Holaway of Cash Mart at the corporate office in Mountain Home. Cash Mart is a payday lender with various locations across the state of Arkansas.
The Arkansas State Board of Collection Agencies controls the licensing of payday lenders and Holaway said the rules and regulations set by the board are what they follow.
"In those rules and regulations they give us a fee schedule of what we can charge a client. Based on that schedule, if a person walks in and they qualify for a loan we tell them how much they can borrow. That is based on their income, of course. We don't want people to borrow money that they can't afford to borrow. That is not what we are here for, we are here to help people out in short term problems," Holaway said.
"For example, let's say a person wants to borrow $350, which is the most any one person can borrow in the state of Arkansas by law. The person is charged a $50 fee. That includes a $10 administrative fee and 10 percent of the face value of the check," she said.
"The situation is that when a person comes in to get a loan they write us a check for $400. We hold that check for 30 days, $350 plus the $50 fee. All of these loans are for 30 days. After 30 days they bring in the cash, the $400, and then we give them their check back and it is all done and over with," Holaway said.
"If they don't come in we have to by law deposit the check. All of this is based on the Arkansas State Board of Collection Agencies' rules and regulations. We are doing nothing they have not told us to do," she said.
"The real problem is a difference on what fees and interest are. The state board is saying we have a fee schedule. The attorney general is saying that it is interest. Well, we have to abide by the regulatory agency that governs our license, the state board. We are following their rules," Holaway said.
According to Holaway the business is caught between a rock and a hard place with two state governing agencies. The Arkansas State Board of Collection Agencies is telling them to do one thing and the Arkansas State Attorney General another, Holaway said.
"In all honesty, we try and make these people understand that it is very short term. If they have to come back and borrow again, borrow less money so eventually they will not have to borrow at all. Our goal is for these people to get out of debt. I mean, let's get real, it might sound stupid for a company that does what we do, but we are not out there to just keep loaning, loaning, loaning," she said.
The level of accountability of the borrower is in debate, but Holaway said sometimes people get in a routine of borrowing that for some can be hard to break.
"We have forgiven debts over the years for people who just can't pay and are never going to get out of the cycle. We have done that numerous times. But here again, all we are doing is following the rules and regulations that have been given by a state agency that governs our license," she said.
"Now, the situation is that all payday lenders go out of business because the state attorney general is doing this usury thing. On the other hand, what do you do about that person who really needs that short term loan and can't get one from the bank?" she said.
"We are trying to provide a service for these people, and we are trying to do the best we can. We are very up front with people, telling them it is very short term and that if they are having real financial problems they need to contact a financial helper and get out from underneath the debt," Holaway said.
Between the Arkansas State Board of Collection Agencies and McDaniel, not many options exist for the lenders.
"We honestly don't know what they are going to do. The attorney general is saying in his statements that we have relied on the state board of collection agencies and maybe that reliability was not correct. Well, what are we supposed to rely on?" she said.
According to Holaway, the 300 to 500 percent annual interest rate is incorrect because Cash Mart only offers one-month loans to clients and charges a fee as dictated by the Arkansas State Board of Collection Agencies.
The $50 paid to receive the $350 is 14.29 percent of the borrowed sum over the course of the one month loan.
She also said there is no interest incurred on the outstanding balance if it is not paid. "I have a hard time understanding how he got to the annual interest rate. I am having a hard time with the interest rate, period, because the state calls it a fee schedule," she said.
"There is no second, third or fourth month of non-payment. That contract ends on the 31st day," Holaway said.
When a person does not pay the balance off in the 30-day period and there are insufficient funds to cash their check with the bank, Holaway said, Cash Mart explores various options to collect. These options range from a payment plan to court intervention if needed.
"Sometimes we get it, sometimes we don't. You would be surprised how much we write off," she said.
Holaway said the court cases used by McDaniel to showcase usury on the part of payday lenders, are years old and the businesses involved no longer exist in Arkansas.
McDaniel says he will continue to lead a crusade against the payday lenders in Arkansas; lenders who are now uncertain of their future and can only wait to receive the final judgment.
"All I know is that we try to protect our clients and give them good honest service. We do not badger anyone. But there is a need because you can't go to the bank and borrow $300," Holaway said.
"We need the state of Arkansas to decide what guidelines we need to run under and then once they do, we will adapt or not operate. That is what it boils down to," said Holaway.
Locally the stores in Highland, open since May of 2001, and Batesville, open since July of 1999, and the corporate office in Mountain Home remain open and in business. According to Holaway, the stores will continue to issue loans until they are mandated by law to cease and desist although, that mandate may never come. "Honestly, it is just a waiting game now," Holaway said.