High Court Throws Out Payday Lender Law
Last updated Thursday, November 6, 2008 9:55 AM CST in News
By Andrew DeMillo
THE ASSOCIATED PRESS
LITTLE ROCK — The Arkansas Supreme Court ruled Thursday that the 1999 Check Cashers Act “unmistakably” allowed payday lenders to charge triple-digit interest rates in violation of the state constitution.
In a 6-0 decision, the court overturned a Pulaski County judge who last year ruled that the 1999 act was constitutional after justices sent the case back to his court without ruling on the law itself.
The state constitution limits interest rates on loans to 17 percent.
Justice Paul Danielson wrote in the court decision Thursday that the act “clearly and unmistakably conflicts” with the constitution.
“In sum, because the Check Cashers act clearly authorizes loans charging usurious rates of interest in contravention of the limit set forth in Article 19 Section 13, we hold that the act in its entirety clearly and unmistakably conflicts with the Arkansas constitution and is unconstitutional,” the ruling states
The court agreed with opponents of the act in finding that fees allowed under the law were essentially interest.
“Because that fee is in reality an amount owed to the lender in return for the use of borrowed money, we must conclude that the fees authorized clearly constitute interest,” Danielson wrote.
Justices heard oral arguments in the case last week — the third time the challenge to the law had appeared before the state’s highest court. In previous rulings, the court did not directly address the issue of whether the law was constitutional before sending the case back to Circuit Judge Barry Sims.
Todd Turner, an Arkadelphia attorney who represented plaintiffs challenging the law, said the ruling makes it impossible for payday lenders to operate in the state.
“It’s great for all the Arkansas residents who have been paying 600 percent for these loans, particularly the ones who have been paying them to companies who point to a license on the wall and say this is legal,” Turner said.
Newly sworn-in Justice Elana Wills, who previously worked in the attorney general’s office, did not participate in the decision.
The act was tossed out as the number of payday lenders in the state has dwindled in response to threats of lawsuits from the state’s attorney general. An advocacy group said in a report last month that the number of payday lenders operating in the state has dropped from 237 in March to just 33 following the cease-or-desist letters sent by Attorney General Dustin McDaniel.
McDaniel told the firms that their high-interest loans violated the usury limits of Arkansas’ constitution and demanded that the firms stop issuing high-interest loans and forgive any outstanding debts.
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 and thereby allow the customer time to buy back the check.
The $50 charge on the $350 loan for 14 days equates to 371 percent, well above Arkansas’ usury limit of 17 percent.
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tg72 wrote on Nov 6, 2008 4:28 PM: