Tuesday, June 27, 2006

Arkansas Payday Loan Critics Say Lenders Trying to Skirt State Laws With New Products

By Desmond Carlisle
Payday Loan Writer

The nation's largest provider of payday loans stopped issuing the advances in Arkansas as of late last week, but said it would keep doing business in the state, according to the Arkansas News Bureau.

The Natural StateA spokesman for Advance America Cash Advance Centers, Inc., said that the payday company's 30 stores in Arkansas would begin operating as check cashers this week.

"We don't expect a disruption in services to our customers," Jamie Fulmer said. "We will operate under the existing law."

Current state law prevents licensed check cashers from offering "deferred presentment" checks over $400, according to the Arkansas State Board of Collection Agencies (ASBCA). But the state's Check Cashiers Act, passed in 1999, allows some out-of-state banks affiliated with check cashing firms not licensed in Arkansas to hand out small loans over that amount.

Peggy Matson, executive director of ASBCA, said Advance America received a license from the agency's board in March to offer check cashing services.

The company will now be able to offer some payday cash advances in compliance with state law, Matson said, and will not be operating under the bank model going forward. However, one of the most vocal opponents of the cash loan industry in Arkansas said Advance America is simply reinventing itself to offer similar transactions that opponents contend are illegal.

"This is very curious," said Hank Klein, president of the Arkansans Against Abusive Payday Lending.

Advance America said in March that it would stop offering installment and payday loans in Pennsylvania and Arkansas following an FDIC investigation. The inquiry resulted in a determination to crack down on payday advance lending by examining companies' partnerships with state-chartered banks.

Prior to the pullout, Advance America had operated in Arkansas through a partnership with First Fidelity Bank of Burke, S.D. Other out-of-state banks with operations in Arkansas include First American Cash Advance, which runs 30 quick payday loan storefronts in Arkansas through a partnership with Community State Bank, based in Burke, S.D.

Rushmore Loan Co., based in Sioux Falls, S.D., operates 55 short-term loan stores across Arkansas under the names of Money Depot, Show Me The Money, Cash 4 U and Check N Tote. The recent FDIC ruling instructed certain banks to discontinue payday cash advances and alternative credit products if they could not adequately address regulators' concerns.

Advance America shut down 117 retail centers in North Carolina and 101 in Pennsylvania, but the payday giant resumed operations in Pennsylvania last week by rolling out a new service that gives a $500 line of credit to consumers in exchange for a monthly participation fee, plus interest on outstanding loan balances.

Similarly, Ace Cash Express said in April it would stop giving short-term consumer loans in Arkansas and Pennsylvania offered by Republic Bank of Kentucky on June 30.

Opponents of fast payday loans blame the 1999 act for opening up loopholes that allow what opponents refer to as predatory lenders to circumvent the state constitution, which limits interest on consumer loans to 17 APR. No fax cash advance businesses, critics charge, inflicts rates as high as 520 percent.

Klein said Advance America and Ace are simply getting around state and federal laws again, and that the last hope to keep predatory lending from afflicting Arkansas may lie with the Legislature and several politicians now running for office. Both Republican gubernatorial candidate Asa Hutchinson and Attorney General Mike Beebe, the Democratic nominee, have promised to overhaul the seven-year-old act.

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