Arkansas Attorney General Dustin McDaniel has ordered payday lenders throughout his state to shut down immediately or face the likelihood of lawsuits from his office. Letters were sent to about 60 companies that run 156 payday lending firms in Arkansas. The Attorney General said in his letters:
It is the position of this office that you must cease and desist your payday lending practices. In addition, I hereby demand you void any and all current and past-due obligations of your borrowers and refrain from any collection activities related to these payday loans. Be forewarned that your failure to comply with this demand will likely lead to litigation to enforce the laws of Arkansas.
The Attorney General’s actions are based on two recent Arkansas Supreme Court opinions that make it clear that the high interest rates charged by payday lenders violate the state constitution and the Arkansas Deceptive Trade Practices Act. According to the Arkansas Constitution, no one should charge an interest rate higher than 17%. But the state Check Cashers Act that allows payday lenders to operate in the state says a fee paid for holding a check written before the date it is to be cashed “shall not be deemed interest.” The Supreme Court opinions in two separate cases addressed this conflict. In one case, justices said the Check Cashers Act, passed by the state Legislature in 1999, did not provide “blanket protection” for going over the constitutional cap. In the other case, the court ruled that a customer can collect the surety bond from a payday lender accused of violating the state constitution by charging more than 17% a year to borrow money.
In payday lending practices, typically someone wanting a loan goes to a check-cashing company and writes a check for a certain amount. The company then agrees not to cash the check for a specified time — often waiting until the check-writer’s payday, when money can be deposited to cover the amount of the check. Through a payday loan in Arkansas, a customer writing a check for $400, for example, typically would receive $350. The lender would keep the check for about two weeks without cashing it, thereby allowing the customer time to buy back the check. The $50 charge on the $350 loan for 14 days equates to 371% interest, well above Arkansas’ 17% limit. Attorney General McDaniel says:
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% is unlawful and unconscionable and it is time that it stops.
Hopefully, this effort by the Arkansas Attorney General will be successful and consumers in his state will get needed relief. I commend Attorney General McDaniel for taking this needed action. Other states should follow his lead and come down hard on the payday loan sharks
Source: Center for Responsible Lending
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