A bill to severely limit interest rates charged for payday loans overwhelmingly passed the Arkansas House of Representatives on Thursday, marking the biggest threat to the practice in the eight years that it has been legal in the state.
The vote was 90-3, with two lawmakers voting present. Now the bill goes to the Senate.
“I think we’re going to have a job to do in the Senate,” said Rep. David Johnson, D-Little Rock, the primary sponsor of the bill. “We’ll be starting over again; we’re halfway done. I’m excited and happy about the result, and I hope that gives us some momentum going into the Senate.”
Interest on instant cash loans can amount to several hundred percent on an annual basis.
The vote was no surprise, said Bradley Rogers of Stuttgart, president of the Arkansas Financial Services Association, an organization of payday lenders.
“As many sponsors as they had for the bill, we expected that,” Rogers said.
If the bill passes in the Senate and is signed by Gov. Mike Beebe, it will become law immediately, according to a provision in the bill.
Beebe will sign the faxless payday advance bill if it reaches his desk, said Matt De-Cample, Beebe’s spokesman.
“As far as this first step [of passing in the House ], this is a good move to protect some of our poorest citizens,” DeCample said.
An Arkansas payday loan works like this: A customer writes a check for $ 400, for example, and receives $ 350 in cash. The lender normally keeps the check for two weeks without cashing it.
A $ 50 charge on a $ 350 loan for 14 days is the equivalent of 371 percent in annual interest. If the borrower cannot pay the loan in two weeks, he writes another check, pays another fee and the loan is extended for two more weeks. The process often continues for months.
Some borrowers spend more than $ 1, 000 before paying off one loan, consumer advocates say.
If the bill passes and is signed by Beebe, Rogers said the 275 no fax needed payday loan lending stores in Arkansas would go out of business that day.
If payday lenders do go out of business, that will limit the choices for borrowers, Rogers said.
“They’ll have fewer options when they come up between paychecks and they need a small cash advance,” Rogers said. “There are unexpected bills, unexpected expenses that pop up all the time. If this bill passes and we go out of business, [consumers ] will be pushed and forced to go to some unregulated lender, some unregulated industry.”
Opponents of cash advance payday loan lending say one option for borrowers is to take a cash advance on a credit card.
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