Payday lending law argued before Supreme Court
Last updated Thursday, October 30, 2008 8:13 PM CDT in Business
By Rob Moritz
THE MORNING NEWS
LITTLE ROCK -- The law regulating the payday lending industry in Arkansas should be stricken as unconstitutional because it allows companies to make loans to consumers at interest rates that exceed the state's 17 percent usury limit, a lawyer for opponents of the law argued Thursday before the state Supreme Court.
"This act violates the constitution and is nothing more than an effort to create an exemption to allow short-term loans at exorbitant rates of interest," said Todd Turner, attorney for opponents of the 1999 Arkansas Check Cashers Act.
A lawyer for the state board that regulates payday lending operations in Arkansas told justices the case should not be before the court because it seeks a declaratory judgment without presenting evidence
Tom Thrash, representing the State Board of Collection Agencies, also denied the law allows interest rates higher than the state usury rate, and said several companies that charged the higher rates have been sued and shutdown.
"There is nothing in the act that is precluding the attorney general from prosecuting cases that are in violation of usury," Thrash said. "There is nothing in the act that gives anyone a defense of the usury claim."
Opponents of the law asked the state Supreme Court to decide the constitutionality of the 1999 Check Cashers Act earlier this year after a Pulaski County circuit judge ruled the act was constitutional.
Thursday's hearing in the case was the third before the high court.
In 2001, the Supreme Court ruled that the Legislature in passing the law made an "invalid attempt to evade the usury provisions of the Arkansas Constitution." The court, however, did not rule on the constitutionality of the act.
In January, the high court, in a separate ruling, said the Check Cashers Act did not give "blanket protection" to companies that violate the state usury law.
After the oral arguments Thursday, Thrash said striking the law would deregulate the state's check-cashing industry in the state and cause problems.
"They would have no limitation, no regulation and no restrictions whatsoever," Thrash told reporters. "If you keep the act in place, these checking industries and business have restrictions and limitations that are regulated by the State Board of Collection Agencies."
Turner said the deregulation argument was a red herring.
"There was no problem at all before 1998 when these places started popping up," Turner said. "There were two and three at a time and the attorney general went after them.
"The practice is illegal and the Supreme Court has said it is illegal, and whenever one pops up the attorney general sends them a letter and shuts them down. It's not a problem."
Earlier this year, Attorney General Dustin McDaniel issued cease-and-desist letters to payday lender operations in the state, accusing them of violating the state's usury law set by the state constitution. The attorney general demanded the practice stop and that outstanding debts be forgiven.
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Payday Lending Rep wrote on Oct 31, 2008 11:50 AM:
Todd Turner's claim that payday loans charge "exorbitant rates of interest" clearly illustrates that he does not understand the payday loan process. Comparing short-term credit to other annual credit options is illogical because they are not the same product. If he did the math, he would find that annual credit options have far higher interest rates than payday loans when expressed in two week terms. For example, a $100 bounced check with $55.59 NSF/merchant fee is 1449% APR; $100 credit card balance with $37 late fee is 965% APR. This is opposed to a payday loan fee (about $15 for every $100 loaned), which is the 391% fee everyone is talking about. Doesn't look so bad now does it?
A 17% fee is completely unfeasible for these lenders. Customers would be paying about $0.65 for every $100 they borrow. Payday advance lenders could not cover the cost of originating a loan, let alone meeting employee payroll, benefits, and other fixed business expenses. It's impossible. "