Payday Loan Times

On Wednesday, Arkansans Against Abusive Payday Lending (AAAPL) released an updated study of payday lending in Arkansas that shows about half of the state’s 265 payday advance loan lenders are still not being regulated by the state.

Since an earlier survey was released in March, the state agency charged with regulating payday lenders, the Arkansas State Board of Collection Agencies, has taken some steps toward better licensing and stricter regulation, AAAPL said.

The latest data shows that 55 percent, or 146, of the state’s 265 payday cash loan lenders are now licensed and regulated by this state agency to make payday loans.

That leaves 45 percent unregulated, the report said.

Of those, the report said 38 percent, while licensed by the state, are not regulated and are allowed to make cash loans that don’t comply with the state board’s own regulations. Another 7 percent are neither licensed nor regulated by the state.

“Recent actions taken by the ASBCA represent a step in the right direction in favor of Arkansas consumers,” said H. C. “Hank” Klein, founder and president of AAAPL. “However, a regulation rate of 55 percent would still get an ‘F’ on any academic grading scale. While progress has been made, much more remains to be done.

No payday lender in Arkansas should be allowed to operate without both a license to make payday loans and meaningful regulation by the [state board].”

Among the state board regulations the report says lenders aren’t following:

• Customers having more than one check held by the same payday lender at a time
• Lenders making faxless payday loans in amounts greater than $400
• Loan terms longer than 31 days; and lenders not issuing loans in cash.

Quick payday loan lending in Arkansas has been the subject of constant litigation since the General Assembly adopted the Check Cashers Act of 1999.

The Supreme Court voided part of that law in 2001 in a case styled Luebbers v. Money Store Inc. but has not directly ruled on the question of whether the fees charged by payday lenders are tantamount to interest in excess of the constitutional limit, as argued by opponents of the short-term lending practice. If the fees are calculated as interest, the rates routinely exceed 300 percent.

That didn’t last long.

A spokesman for the nation’s largest payday lender said Thursday that despite its promise to stop making payday loans to military families, it must continue or violate an Arkansas law passed just last year.

Advance America, amidst fanfare and with a full-page ad in USAToday last September, said it would stop making payday loans to the military in October - but earlier this week, an employee of the Jacksonville Advance America branch assured one Little Rock Air Force Base airman’s wife that she could borrow as much as $350 for two weeks at an annual interest rate percentage of 336 percent.

By way of contrast, 8 percent would be a high home mortgage rate, but only payday lenders are exempted from the state’s 17 percent usury cap.

The sponsor of that act, state Rep. Jeff Wood, D-Sherwood, who is an Arkansas National Guardsman and a lawyer, called it ironic that his law, designed protect the civil rights of military members, was being used by payday cash advance lenders to continue to prey upon them.

Wood called Advance America’s interpretation of his legislation “a crafty argument.”

“That’s not the intent of the legislation,” Wood said Thursday. “The intent is to protect servicemen.”

“Making loans to military at triple-digit interest is not doing them a favor,” said Hank Klein, founder of Arkansans Against Abusive Payday Lending.

“It does not protect them. I think it’s pretty sad that they would make that statement and then back off and say the law prevents them from quitting such loans.”

In October, Congress passed a law capping interest rates on loans to military personnel at 36 percent. The Arkansas Leader reported on this story of what has changed.

When asked Thursday why Advance America continued to make such loans in Arkansas, spokesman Jamie Fulmer said it was required by Arkansas law.

Advance American announced Sept. 25 that it would “respectfully and voluntarily refrain from making any payday advances to active, full-time members of the military effective Oct. 15, 2006, except where strictly prohibited from doing so by applicable law.”

It was the “except where strictly prohibited from doing so by applicable law” portion that requires Advance America to continue making those payday cash loans in Arkansas under Act 12-62-1205, according to Fulmer, director of investor relations.

(Read on …)

A lawsuit challenging Arkansas laws allowing payday advance fees that exceed the state’s interest limits again will return to a Pulaski County Circuit Court. The Arkansas Supreme Court sent the case back Thursday to the lower court.

While declining to make its own ruling on constitutionality of the Arkansas Check Cashers Act, the Supreme Court reversed and remanded the case to Judge Barry A. Sims for the second time.

The court’s decision keeps the instant payday loan lawsuit against the 1999 act alive for those suing, who claim it violates the state constitution by allowing payday lenders to make consumer loans with interest rates of more than 17 percent annually.

An opinion written by Associate Justice Donald L. Corbin disagreed with the lower court’s decision that said the plaintiffs must first exhaust administrative appeals before seeking a decision by the courts.

Todd Turner is an Arkadelphia lawyer representing the plaintiffs. He says the court’s decision on the use of bad credit payday loans will force a decision on the legality of the act.

Yesterday, Arkansas’ regulator of payday lenders ordered a Conway businessman to pay more than $ 217, 000 in fines and refunds to customers for operating payday loan stores without a license.

The Arkansas State Board of Collection Agencies voted unanimously to order C. Michael Stout, who formerly owned payday lending stores in Conway, Heber Springs and Hot Springs, to pay $ 173, 050 in fines to the board and almost $ 44, 000 in refunds to customers.

It was the second-largest fine imposed by the board and the second major fine levied in five months. On June 28, Dennis Bailey of Fordyce was fined more than $ 1. 3 million for operating 14 payday lending stores throughout the state without licenses.

Payday loans in the state: The Arkansas Supreme Court is considering a case on the constitutionality of the Arkansas Check-cashers Act, which permits payday advance loans in the state. The court heard oral arguments early this month on the case.

Plaintiffs in the case argued that payday lenders in Arkansas routinely charge interest rates on loans that exceed the 17 percent constitutional limit on interest rates.

Overall, there are about 275 licensed providers of cash loans in the state.

Stout owned Cash Advance of Hot Springs Inc. and Check Mart Inc., which had stores in Conway and Heber Springs. Earlier this year, he sold the Conway and Hot Springs stores, which are still being operated as payday lenders under the new owners, and closed the Heber Springs store, said Peggy Matson, executive director of the board.

Stout and Bailey operated their stores under a similar arrangement. Both claimed to finance low fee payday loans through Missouri finance companies. But Matson said Tuesday that Dunn Finance Co., the Missouri company affiliated with Stout’s Arkansas stores, was a sham and that there was no financing of loans through the Missouri business.

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Todd Turner made a simple point in state Supreme Court yesterday: an Arkansas’ law that permits payday advance lending was written in 1999 for the purpose of allowing payday loans to exceed the state’s usury limit.

The lawyer argued that the law, the Arkansas Check Cashers Act, allows payday lenders to charge interest rates on their loans in excess of the state’s constitutional limit of 17 percent.

Turner wants the Supreme Court to rule that the law is unconstitutional, reported the Arkansas Democrat Gazette.

Before the law was passed, Turner said, Arkansas Attorney General Winston Bryant sued several payday lenders in the 1990s, claiming they charged usurious rates of interest in violation of the state Constitution. The providers of online payday loans eventually settled each of Bryant’s lawsuits.

In 1999, however, the Legislature passed the Check Cashers Act, which said that the money payday lenders receive is fees and not interest.

“This act gives cover to [quick cash advance lenders ] to do what they’re doing,” Turner said. “The state shouldn’t be involved in illegal action.”

Little Rock lawyer Tom Thrash, who argued the state’s case, said after the hearing that he expects the court to rule in two to three weeks.

Payday loan client histories: Some payday loan borrowers spend more than $ 1, 000 before paying off one loan, according to H. C. “Hank” Klein, president of Arkansans Against Abusive Payday Lending, a consumer advocate group.

More facts include: There are about 275 payday lending stores in Arkansas; Arkansas is one of 38 states that have laws allowing instant payday loan lending, according to the Consumer Federation of America in Washington.

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The candidates for Arkansas attorney general debated a variety of issues Tuesday, including the state's role in addressing illegal immigration and whether or not they'd limit payday cash loan lending.

The hour-long debate among Republican Gunner DeLay, Democrat Dustin McDaniel and Green Party candidate Rebekah Kennedy was aired on the Arkansas Educational Television Network.

The three candidates each said they would support legislation limiting bad credit payday loan lenders from charging interest rates beyond the constitutional limit.

Delay noted that McDaniel has taken donations from payday advance lending companies. But McDaniel responded that the donations amounted to less than "one-tenth of 1 percent" of the total he has accumulated for his campaign.

"No contribution from anyone" would affect his decision-making as attorney general, McDaniel said.

Kennedy noted that DeLay voted for the original payday lending law when he was in the Senate. DeLay said he voted for the legislation because he felt payday lending institutions needed to be regulated. He said they are necessary because some people have no credit, or poor credit, and can't get small loans from banks.

He said the mistake he made was supporting the bill that classified the amount of money providers of cash advance loans can charge for loans as a fee, rather than as interest.

Perhaps it's because a certain payday advance lender in the state is still causing major problems for former clients. Or maybe they just didn't wish to disagree on absolutely everything.

Whatever the basis for their beliefs, the fact remains that Gubernatorial candidates Mike Beebe (a Democrat, pictured) and Asa Hutchinson (a Republican) both said Monday they support the top items on the legislative agenda of AARP Arkansas.

Among these issues? Legislation limiting fast payday loan lenders from charging interest rates beyond the constitutional limit.

Beebe - the state attorney general and a former state senator - faces Hutchinson, a former congressman and undersecretary of the U.S. Department of Homeland Security, in the Nov. 7 general election. Naturally, the question of regulating cash loans in the state is one of the few they agree on.

AARP Arkansas, which has about 351,000 members in the state, announced plans to push an agenda for improved long-term care funding, better security for nursing home residents and payday loan lending reform in a statewide campaign this fall. The two candidates were asked Monday to respond to these issues of concern.

Beebe said Monday that he opposed the original 1999 Check Cashers Act, having voted to repeal the act in 2001. He said "[payday advance loan] lenders operating in Arkansas under Arkansas law should have to abide by the Arkansas Constitution."

While not exactly a bold statement, The Check Cashers Act allows some out-of-state banks affiliated with check cashers not licensed in Arkansas to hand out small loans above the state-mandated interest rate limit of 17 percent annually. Some cash loan lenders charge rates as high as 520 percent.

AARP Arkansas President Billie Ann Myers said last week the organization wants the Legislature to change to law to restrict providers of bad credit payday loans to charging no more than 17 percent.

Hutchinson campaign spokesman David Kinkade said Monday that Hutchinson has already called for a repeal of the Check Cashers Act and "has advocated placing a penalty fine provision into the state's usury law."

Arkansas seniors, many of whom live month-to-month on their Social Security checks, must be protected from predatory lenders," Kinkade said.

The mess created by one Arkansas payday loan lender continues to get messier.

While a regulatory agency continues to gather evidence against an Dennis Bailey - who operated payday lending stores without a state license and was fined $1.3 million for the violant - store officials continue to harass customers who refuse to pay their low fee payday loans, said Peggy Matson, executive director of the Check-Cashers Division of the Arkansas State Board of Collection Agencies.

In June, the ASBCA ordered Bailey's 14 stores in the state to close, fined him and stated all transactions were null and void - but Matson said Bailey continues to collect cash advance loan payments illegally through BMB Finance, a West Plains, Mo., company. Bailey is appealing the agency's administrative order.

The ASBCA advised Bailey's customers to go to their banks and put a stop payment on their checks or electronic debits. Some customers who put a stop payment on their electronic debits found money still was being withdrawn because Bailey withdrew less than the amount put on the stop payment, Matson said. He's a slippery criminal.

Meanwhile, Harrison Fast Cash in Boone County, owned by Bailey, has re-opened and the agency cannot close the store because it also offers a budget phone service and money orders, Matson said.

Bailey had no comment, but his attorney, Paul Johnson of Little Rock, stated in an appeal that the ASBCA order violates the Constitution, was not supported by evidence and was an abuse of discretion. A Pulaski County judge has yet to rule on the appeal.

Moreover, in the case that won't end, Matson said two people, one of whom is Bailey's relative, have applied for a state license for the instant payday loan stores.

It hasn't been a good summer for payday loan companies in Arkansas. 

We've already discussed the legal trouble Dennis Bailey found himself in a few weeks ago. In June, he was ordered to close all 14 of his instant payday loan stores and fined $1.3 million for operating without a license.

Now, another Mountain Home payday advance lending business is facing controversy.

In March, the Arkansas State Board of Collection Agencies contacted Robert Morgan of Morgan Cash Advance, informing him he had been operating without a check-cashing license, said Shelly Crippes, an investigator with the ASBCA.

His firm closed in July, but due to quick compliance with the order, Morgan is allowed to continue collecting bad credit payday loans from his customers. 

He just cannot issue any new payday loans. After the March investigation, the ASBCA fined Morgan $1,000 for operating two stores without a check-cashing license, Crippes said. On April 17, Morgan sent a letter via his attorney, Roger Morgan of Mountain Home, stating he was ceasing all cash loan operations.

The owner of a string of allegedly criminal payday loan companies, who was recently fined a whopping $1.3 million by Arkansas financial regulators, was accused Tuesday by the state of having siphoned cash from his businesses after being hit with the fine and ordered to shut the businesses down.

A Pulaski County court filing by the Arkansas State Board of Collection Agencies claims that Dennis Bailey transferred large sums of cash from payday loan stores and cleaned out the bank accounts of his businesses in an effort to avoid paying more the record fines.

Bailey was ordered by the board June 28 to close his stores in Arkansas after regulators found him in violation of state lending laws. He asked a circuit Judge to review the board decision, and Little Rock lawyer Thomas Thrash submitted the board's response Tuesday.

The attorney asked for a full accounting of the finances of the payday advance businesses and for a judgment against Bailey enforcing the $1.3 million in fines, plus 6 percent interest. The filing also urged to the judge that Bailey must return money transferred out of his business accounts subsequent to the board decision.

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