Leader Blues

Tuesday, March 25, 2008

TOP STORY > >Payday lenders could change loan practices

Leader senior staff writer

“We’re going out of business,” said an Arkansas payday lender last Friday in response to the cease-and-desist letters Attorney Gen. Dustin McDaniel mailed to the operators of 156 payday lending stores in the state.

McDaniel ordered the lenders to stop making the high-interest loans and to stop collecting payments on the loans they already have out.

But, said the lender, speaking on the condition of anonymity, “I’ll turn my stores into pawnshops. Then people will have to bring me a TV or something of value to get a loan.”

He said that unless the law had changed recently, Arkansas pawnshops can charge 1 percent a day, which at 365 percent a year would approximate the same interest rate the payday lenders charge.

He said there were probably about 1,000 people employed in the payday business in the state and so 1,000 jobs are on the line.

In his Tuesday news confer ence, McDaniel acknowledged that the businesses would not disappear overnight. He said some would restructure in an attempt to avoid the law, some would operate without a license, some would fold and some would fight in court.

“The truth is that this will be a long and difficult effort,” McDaniel said.

Typically, payday lenders advance loans of say $300 for two weeks with a payback of $350, which is an annual yearly percentage of more than 300 percent in a state that has a 17 percent usury cap.

The lender said he had not yet received a letter from the attorney general’s office.

Payday lenders “are just going to find another method to do it,” the lender said, and consumers would just find other—perhaps unregulated—ways to get emergency cash.

“The market’s always going to be there,” he added.

“Why wouldn’t the consumer advocates sit down with payday lenders and work out something that’s real good for the consumer that the payday lender can live with,” he asked. “Banks do the same thing.”

He apparently was referring to overdraft protection fees and bounced check fees that can sometimes cost more than the high-interest payday loans.

“Payday lenders have about five different kinds of customers,” he said. “The habitual customer is going to put himself into bankruptcy. That’s the one Hank Klein (founder of Arkansans Against Abusive Payday Loans) is trying to protect. I have that same problem with the cycle of debt. Why not fix the law so that a person can’t do the loan except five or six times a year? It’s meant to be used in an emergency.

“Regulation is better than no regulation at all,” he said. “The (attorney general) and the police can’t keep up with everything.”
“I’m 100 percent in the payday lending,” he said. “When they put me in the ground, they can put payday lending on my marker because I’m proud of my profession.”

Letters were sent to 30 offices of Advance America, including one in Jacksonville and one in Searcy. Also in Searcy, Payday Now received notice. Also sent cease-and-desist letters were Cash Mart in Gravel Ridge, Cash Now of Arkansas in Cabot and Cash Now of Arkansas in Sherwood. Another Sherwood store, Partners Check Service, was sent a letter. Simpson’s Buy and Sell LLC of Lonoke was sent a letter.

The military has prohibited payday loans and has instituted easy-to-obtain loans on base. Credit unions have also introduced small, legal loans that also help customers start a savings program.

Pawn shops in Arkansas are not regulated by any particular agency, according to Gabe Holmstrom, spokesman for the attorney general. They do, however, have to comply with the state Constituition, he said.

Presumably that would include the state’s 17 percent usury law.