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Leader senior staff writer
High-interest payday loans are unconstitutional in Arkansas, the state Supreme Court ruled unanimously Thursday, but that’s not going to stop one home-grown lender who channels his payday loans through a South Dakota finance company he chartered.
“We are very pleased with today’s ruling,” said Todd Turner, the Arkadelphia attorney who has dogged the payday industry for about a decade. “This is a great victory for Arkansas consumers. There are many attorneys, including my co-counsel, Chris Averitt, and organizations who worked very hard on this case, and we hope that this will signal an end to usurious payday lending in Arkansas.”
Arkansans Against Abusive Payday Lending, a coalition of organizations and individuals who have worked to curtail these unfair practices, has been instrumental in developing public awareness of this issue.
At the beginning of the year, there were 275 payday lenders operating in the state. After the attorney general’s office sent cease-and-desist orders to many of them, that number fell to 139 and now it’s 80, according to Hank Klein, a consumer activist who turned his focus on payday predatory lenders in the state.
Of that 80, three remain open in Jacksonville, two of them owned by W. Cosby Hodges and Robert Srygley. Hodges is from Fort Smith, Srygley from Fayettville. They own 53 stores, which claim they operate under a South Dakota charter and are thus not subject to the Arkansas interest limitations.
First American Cash Advance, a Delaware corporation, owns the other 27 stores.
“This is what we’ve been saying for four or five years,” said Klein in praising the 6-0 Supreme Court decision. “The law (allowing high-interest payday lenders) is unconstitutional. You can’t possibly follow the law and follow the Constitution and do it with a straight face.”
The top interest rate in Arkansas is 17 percent. In deciding the Arkansas check casher’s law was unconstitutional, the justices found that payday lenders routinely charged an effective annual rate of 370 percent and more for their $300 or $400 two-week loans, rendering the check-cashing law under which payday lenders operate unconstitutional.
“In the American Check Cashers/MoneyDepot/ShowmetheMoney situation that Srygley and Hodges have, the out-of-state lender (Mount Rushmore, a South Dakota loan company) is just a sham company they have started themselves to try to get around Arkansas law,” Klein said.
“We’re going to make sure they are all closed up and then fold up our tent,” said Klein, a founder of Arkansans Against Abusive Payday Loans.
Hodges wouldn’t speak on the record Thursday, but he faxed a statement that stated, “The products offered by Mount Rushmore meet every aspect of the laws of the state of South Dakota and conform with Arkansas law, which allows parties to a contract to select the rate of another state to govern their contract or transactions.
“Mount Rushmore…does not offer deferred presentment agreements, referred to as payday loans which were…recently ruled invalid by the Arkansas Supreme Court,” Hodges added.
“The Supreme Court reminded everyone that the law has to be consistent with the Constitution,” Justin Allen, Attorney General McDaniel’s chief deputy, said Thursday.
Allen said the attorney general’s office had begun negotiating with Hodges and Srygley.
“We tend to disagree,” Allen said. “We’re at a precipice. We know they are out there but there are different arguments. It may be harder. If there is no compromise, we’ll take some (legal) action.”