Study: Payday lenders skirt AG's warnings
LITTLE ROCK, Ark. (Legal Newsline)-A third of the payday lenders that Attorney General Dustin McDaniel ordered to close their doors have remained open, a study released Wednesday found.
The report by Arkansans Against Abusive Payday Lending shows that 55 of the 156 payday lenders McDaniel sent cease-and-desist letters earlier this year have restructured their businesses to remain open.
The payday lenders have developed "new business models in an attempt to avoid even the minimal regulations of the Check Cashers Act and, more significantly, the recent crackdown by the attorney general," the report said.
In a March 18 letter, McDaniel notified 156 lenders that the state constitution caps interest that may be charged at five percent per annum above the Federal Reserve Discount Rate at the time of the contract, or about 17 percent currently.
To skirt the attorney general's actions, Arkansans Against Abusive Payday Lending found that many payday lenders in Arkansas targeted by McDaniel are now operating by offering payday loans at an interest rate of 8.98 percent annually.
The loans are issued in a corporate check or money order, and the borrower is asked to endorse the corporate check and it is cashed for an additional 10 percent fee.
The attorney general's office said Wednesday that it is committed to protecting Arkansans from high-interest payday loans.
"We are pleased with the result of our efforts thus far, but clearly we still have a lot of work to do," McDaniel spokesman Gabe Holmstrom told Legal Newsline.
"We are, however, committed to seeing this through," he added.
In his March 18 letter, McDaniel demanded that the lenders stop issuing high-interest loans as well as cease collecting on their firm's outstanding debts.
"It is the position of this office that you must cease and desist your payday lending practices," he wrote. "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."
In May, the attorney general filed lawsuits against 20 payday lenders that he said were continuing to violate the constitutional cap on interest rates.
From Legal Newsline: Reach reporter Chris Rizo at email@example.com.