LITTLE ROCK, Ark. (Legal Newsline)-Arkansas Attorney General Dustin McDaniel has filed four lawsuits against payday lenders for violating the state constitution by charging borrowers high interest rates.
The lawsuits, filed in Pulaski County Circuit Court, target businesses that operate about 20 payday lending outlets in the state.
The companies were among the dozens of lenders that were sent a cease-and-desist letter ordering them to stop collecting on outstanding high-interest loans they issued in the state.
The March 18 letter 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 17 percent currently.
In his 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."
But some contend that payday lenders are not bound by the constitutional cap on interest rates since the state Check Cashers Act defined the borrowing charges levied by payday lenders as fees rather than interest.
A lawsuit challenging the constitutionality of the law is pending before the Arkansas Supreme Court.
From Legal Newsline: Reach reporter Chris Rizo by e-mail at email@example.com.