By JOHN HOFHEIMER
Leader senior staff writer
Two years after Attorney General Dustin McDaniel ran the last of the payday lenders out of the state—including about half a dozen in Jacksonville, Sherwood, Cabot and North Little Rock—the House Insurance and Commerce Committee has sent a warmed-over version of the Arkansas Check Cashers Act of 1999 on to the full House.
That’s the assessment of Deputy Attorney Gen. Jim DePriest, who said the office is working against passage of House Bill 1846, the Small Installment Loan Act.
Robbie Wills, a former House speaker and failed candidate for the Democratic Dist. 2 congressional nomination, opposed payday lending when he was in office, but as a lobbyist he has worked for this bill and is listed as executive director of the Arkansas Installment Lenders Association in Arkansas.
“The goal of our association is to create safe, responsible credit options for unbanked and under-banked Arkansans,” Wills says. “Many Arkansans needing to borrow small amounts are denied credit and financial products that are generally available to others in Arkansas due to inadequate credit histories or poor credit scores. This has left many small-loan consumers vulnerable to illegal predatory lending and other expensive, but legal, transactions.”
The loans, between $250 and $5,000, are within the state’s 17 percent interest cap, but would allow a number of “fees,” which the law states “shall not be deemed interest.”
The bill, “to enact the small-loan act to help underserved consumers obtain credit and financial opportunities,”- also authorizes the General Assembly to set the loan interest rates.
The bill reads in part, “Small loans cannot be made profitably under the limitations imposed by existing interest and usury laws of this state.”
It would “allow lenders who meet the conditions of this subchapter to charge a sufficient rate to permit a fair business profit and to provide for a regulatory system necessary for effective enforcement.”
DePriest said lenders servicing car and furniture purchases do fine with the state’s 17 percent cap.
Payday loans were typically 14-day loans, while the new installment loans are six months to four years.
DePriest said that there is no obvious connection between the five entities currently in the Arkansas Installment Lenders Association and the companies that previously ran 230 payday-lending stores in the state.
He said the attorney general’s office has been busy combating the online payday lenders that do business in the state.
In 2006, there were 275 payday-lending stores in the state—more than twice the number of McDonald’s restaurants.
“This is just as onerous as payday lending,” said Hank Klein, founder and former chairman of Arkansans Against Abusive Payday Lending. “It will be used by the same people, who will end up with larger obligations and larger problems.”
“I don’t know the motive behind the bill,” said Reta Kahley, president of the Arkansas Credit Union League, “but credit unions make small loans to consumers every day of the week.” She said credit unions help needy borrowers rebuild credit.
DePriest said Thursday that like the payday lenders before them, after loan rollovers and fees, the effective rate charged by small-installment lenders could be several hundred percent.
“We’re hoping it won’t pass,” said DePriest, but if does, “We hope no lender will risk violating the (state) Constitution.”
“The focus now is to beat back the bill,” said Aaron Sadler, spokesman for the attorney general’s office.
Related bills still in the legislative hopper also would clear the way for questionable lending practices by amending Act 89, but they would be constitutional amendments and would require three-quarters approval in the General Assembly, instead of a simple majority.
