Proposed Arkansas Payday Loan Legislation Not Considered Broad Enough
By J.J. CameronPayday Loan Writer
Opponents of payday loan lending in Arkansas say the Check Cashers Act of 1999 allows predatory practices that circumvent the state constitution's 17 percent interest limit. Many of these operators can turn a small payday advance into a pretty cushy windfall by forcing folk living from paycheck to paycheck to rollover a short-term loan several times.
Some charge exorbitant interest on payday loans, costing the average cash loan borrower in Arkansas $800 for a $350 handout, according to Arkansans Against Abusive Payday Lending. But many lawmakers at the state Capitol and in Washington, D.C., have chosen to ignore the similar usurious features of both these modern banking products.
Rep. Jay Martin, D-Little Rock, and Sen. Tim Wooldridge, D-Paragould, both candidates for lieutenant governor, are pushing draft for the 2007 regular session that would enforce a provision in the state constitution making any usurious transaction illegal, largely focused on payday loans. However, a key provision in their proposal exempts banks, trust companies, credit unions and savings and loans from the enforcement requirements of the law.
During a committee hearing on faxless payday loan lending last month, Rep. Ray Kidd, D-Jonesboro, and Sen. Marvin Childers, R-Blytheville, repeatedly asked Martin and Wooldridge about high fees that banks charge for bounced checks.
"If it is going to apply to (payday loan lenders), then we should apply it across the board," Childers said, calling both practices usurious under the state constitution. Nobody has disputed that payday advance lenders are profiting from the check cashiers law that several lawmakers have said they would look to repeal in 2007. One study by payday lending opponents shows that the practice taxes low-income Arkansans more than $68 million annually.
Overall, U.S. banks raked in $32 billion in account service fees last year, up from $21 billion in 1999, according to SQL Financial, a Charlottesville, Va.-based research firm. At many financial institutions, those fees have become the main source of profits, which often exceed earnings from mortgages, credit cards and all other lending combined.
A tearful witness who testified at legislative hearings in March spoke of being caught in a game of financial ping-pong between payday loan lenders and her local bank after bartering a post-dated check for a temporary $300 loan for a small fee. After sickness left the Jacksonville woman unable to pay off her loan, a harassing check cashing operator still sent the woman's check to her empty bank account. Of course, the check bounced and the woman was charged a courtesy overdraft fee on money she didn't have. Six months later, after the bank and payday lender had piled on usurious fees, she found relief by getting legal help.
Credit counselors warn that paycheck advances and the bank's courtesy overdraft service sounds good on the front end, until consumers start adding up the costs. One thing is sure: While some people are grieving, payday loan lenders and bankers are laughing all the way to the bank.
