LITTLE ROCK (Legal Newsline)- Arkansas Attorney General Dustin McDaniel has led an aggressive charge against payday lenders, saying they prey on the poor and ensnare them in debt by charging triple-digit interest rates.
Last month, the Democratic attorney general announced he sent 156 letters to licensed payday lenders demanding they cease using what he called illegal lending practices in Arkansas by issuing high-interest loans.
"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 at a press conference.
"They were in poor financial straits when they needed that microloan, they obtained it and then they're caught in a financial situation that makes it even worse," McDaniel added.
As of last week, McDaniel's office said more than 50 companies, which account for the overwhelming majority of payday lenders in the state, said they will comply with the cease-and-desist letter.
McDaniel warned lenders that the state constitution caps interest that can be charged at 17 percent.
But in the coming months, McDaniel might find himself in a precarious position if he is called to defend the state's Check Cashers Act before the Arkansas Supreme Court.
The law, enacted in 1999, is being challenged on its constitutionality.
The law declared that income to payday lenders comes in the form of fees rather than interest, which allows payday lenders to forgo the 17 percent interest limits set forth in the Arkansas Constitution.
The industry says they see a conflict between McDaniel's determination to put them out of business and his role in defending the Check Cashers Act.
Jaime Fulmer, director of public affairs for Advance America based in Spartanburg, S.C., said McDaniel will be in the "unique position" of having to defend a state law that helps keep open the very businesses that he has vowed to shutter.
"We understand the difficult position that the attorney general finds himself in," Fulmer told Legal Newsline.
Advance America Cash Advance Centers, the nation's largest payday lender, has 30 retail centers in Arkansas.
Fulmer said the "core issue" is whether adult consumers in Arkansas are capable of making "a reasonable decision" about borrowing small amounts of short-term cash.
Lyndsey Medsker, a spokeswoman for the Community Financial Services Association of America, a payday lender industry group, said eliminating payday lending could have dire consequences for some borrowers.
"Eliminating payday loans as an option does not eliminate the need for
short-term credit. Instead it forces consumers to choose between more
expensive alternatives." Medsker told LNL in an email.
Among them: bounced check fees, late payment fees, and going to unregulated off-shore Internet lenders, she said.
While the payday lending industry awaits a court decision many lenders are expected to shut their doors, Medsker said.
"We do not know the future of the payday advance industry in Arkansas. We do expect many lenders to close their doors while waiting for decisions to be made by the court," she said.
"The bottom line is that working adults are best served when given a variety of options and trusted to make financial decisions based on what's best for them and their families," she added.
From Legal Newsline: Reach reporter Chris Rizo by e-mail at email@example.com.