Thursday, March 9, 2006

Arkansas payday loan regulations are under attack from a consumer advocacy group that claims loopholes in the state's law cost citizens $68 million per year, according to the Arkansas News Bureau.

"The price of this lax enforcement of the usury protections of the Arkansas Constitution is unfortunately being paid by Arkansas consumers who use payday loans," Hank Klein, president of the Arkansans Against Abusive Payday Lending coalition, said.

The group contends that a 1999 law passed to regulate the payday advance industry is full of gaps that hurt consumers. The coalition accused the state agency overseeing payday loan operations of lax enforcement and neglecting the industry it governs — or is supposed to.

But the director of the Arkansas State Board of Collection Agencies (ASBCA), Peggy Matson, claims the accusations are simply are not true.

Klein blames the 1999 Check Cashers Act for allowing payday loan firms to expand in Arkansas and circumvent the constitution, which limits interest rates on consumer loans to 17 percent annually. Klein believes the law has failed to curb abusive practices that cost the average payday loan borrower $800 for a $350 advance, equal to an APR of 400 or more.

"Nearly seven years after it became law, the industry is largely without regulation and oversight by the state," Klein said.

In its 55-page report, the coalition concluded that 209 of the 275 payday lending operators in Arkansas are not regulated, and showed that:

• Most payday loan stores in Arkansas are located near military bases.
• Seventy payday lenders licensed by the state are not regulated due to the state board's "soft" interpretation of the 1999 act.
• Another 139 Arkansas payday loan outlets offer loans that are not regulated by five-person regulatory board.
• Two of the ASBCA board members who voted to exclude payday lenders from state regulations have financial connections to out-of-state companies that use the "rent-a-bank" model.
• Many sections of the 1999 act are not strictly enforced by the ASBCA staff, including a prohibition against payday lenders issuing more than one loan at a time per consumer.

"Payday lenders continue to create various models of operations in attempts to disguise their transactions, or cause their transactions to appear to be a product other than a payday loan. Worst of all, there seem to little or no repercussions from the state board for the payday lenders that use these methods," Klein said.

Matson replied that the collection board and its staff abide by the 1999 act and have rules to reprimand any violators, although she could not immediately provide statistics on the number of quick payday advance loan operators that have been admonished or fined in the last year. In fact, she offered a different interpretation of the rules for each example in the group's report.

Klein also accuses the collection board of corruption, stating that members Gary Frala and Denise Stewart have financial ties to business owners who use questionable lending models. Frala and Stewart both voted recently to exclude 140 so-called "rent-a-bank" and "rent-a-finance" firms from state regulations.

ASBCA statistics show that more than 100 payday lending operations in Arkansas are incorporated in South Dakota. These loan companies operate under names as First American Cash Advance, Payday Money Store, Cash Advance, Money Depot, Show Me The Money, and American Check Cashers (which is incorporated in nine Arkansas cities).

How long Arkansas payday loans will continue to be available to consumers, and under what pretense, remains to be seen. They certainly have their opponents, but the deciding factor will be if they are able to convince state lawmakers to take action.

This entry was posted on Thursday, March 9th, 2006 at 10:37 am and is filed under Arkansas.