Don’t tell us that the laws aren’t written for the big guys. The payday lenders are back in Arkansas charging everything from 120 percent interest to highway robbery. But this time, they are some of the nation’s biggest banks and it’s all perfectly legal.
It took 10 years, but the state succeeded two years ago in chasing out all the loan sharks who were making “payday” loans at interest rates 10 to 20 times the rate (17 percent) allowed by the Arkansas Constitution. Attorney General Dustin McDaniel harassed the payday lenders and the Arkansas Supreme Court finally—finally!—just flatly ruled that it was all illegal. It took a few months after that for McDaniel to shutter the last storefront lender.
The payday lenders took advantage of people desperately needing a little cash by contracting with them to advance them a few hundred dollars in exchange for a big chunk of their next paycheck. People would get trapped in the cycle and have to renew the loan, each time at usurious rates.
Now, three of the nation’s largest banks—Regions, US Bank and Wells Fargo—are offering their customers the same deal. The interest runs from 120 to 500 percent. That clearly violates the state Constitution, but it’s permissible under the Gramm-Leach financial deregulation law of 1999. That was the Republican law, written by Sen. Phil Gramm, R-Texas, that pretty much told the financial houses to go do their thing and the federal government wouldn’t be watching anymore. We know how that turned out on a national scale.
One provision allows the payday lending in states like Arkansas. An out-of-state bank can charge whatever interest rate it chooses in Arkansas regardless of the state’s restrictions as long as that interest rate is permissible in the bank’s home state. Federal law, of course, trumps state law, so the lending practices are legal. The banks insist that the huge charges are not interest rates but “fees.” The state Supreme Court has always said fees were a sham. You can call it whatever you like but it is interest.
McDaniel has been suing online payday lenders in Arkansas and he’s studying what he can do about the big banks. The answer is, probably nothing, though we hope he is resourceful and finds a way. It is going to take action by the U.S. Congress to restore the protections for Arkansas people, and that is a virtual impossibility. The big drive in Congress now by the tea-party evangels and others is to get rid of the few protections for consumers put into the financial regulation act that Congress passed last year, the so-called Dodd-Frank law.
Put another restriction on the bankers just to protect a few poor saps in Arkansas? No way. Just ask the members of our own congressional delegation—any of them. They know from whence the campaign money flows. —Ernie Dumas
