Payday Loan Times

With the Legislature’s failure to further regulate providers of payday advance loans for the fourth consecutive session, the battle over the constitutionality of the industry’s practices will shift back to the judicial branch this fall.

Legislation to cap check-cashers’ rates at the state usury limit and fine operators who charge more passed the House, but died in the Senate during the recently concluded regular session.

An industry-backed bill that critics said repeated reforms, such as banning rollover Arkansas payday loans, that are already law while doing nothing to limit lenders’ fees passed the Senate but died in the House.

With the stalemate, opponents said they would fall back on a 2003 lawsuit in their fight to end practices they say allow payday lenders to charge triple-digit rates for short-term cash loans, far exceeding the state’s 17 percent usury limit.

“This is such a clear cut, legal black and white issue. You can’t charge people 300 percent for credit in Arkansas under our constitution,” Arkadelphia lawyer Todd Turner, who represents plaintiffs in the lawsuit, said Tuesday.

In November, the state Supreme Court reversed a lower court’s finding that it lacked jurisdiction to decide the constitutionality of the 1999 Arkansas Check Cashers Act and sent the case back to Pulaski County Circuit Court. Circuit Judge Barry A. Sims is scheduled to hear the case again beginning Nov. 20.

“It’s been ripe to be decided since the day we filed the lawsuit,” Turner said.

The suit asks the judge to declare unconstitutional the 1999 act, which specifies that fees charged for pay day loans “shall not be deemed interest.” Charging interest above 17 percent would violate the constitution’s usury limit.

Until the issue is decided, payday advance lenders will continue to operate under the 8-year-old law.

It requires businesses to be licensed by the Arkansas State Board of Collection Agencies, that they issue quick cash advance loans for no less than 6 days and no more than 31 days, that they assess fees based on the face amount of the check, which cannot exceed $400, and that they be subject to audits by the board.

Peggy Matson, executive director of the collection agencies board, said to be licensed, businesses must pay a $500 fee, prove they have $20,000 in liquid assets and maintain that amount, have the business experience to operate such a business, prove they will operate in compliance of the law, and post a $50,000 surety bond.

Turner has won judgments against individual personal cash loan lenders whose fees were ruled to have exceeded the usury limit, but in some cases awards could not be collected because the operations were insolvent, he said. Turner made claims against the assurity bonds, but the board has ruled that the bonds do not cover those judgments.