Tuesday, March 21, 2017

TOP STORY >> Payday lenders trip bill in House

Leader senior staff writer

Sen. Jason Rapert’s passed-again, failed-again consumer-protection bill was expunged late Tuesday afternoon after state Rep. Doug House (R-North Little Rock) nullified the 51 to 12 “failed” vote when supporters were not in the chamber, setting the stage for another vote as early as Wednesday.

Rapert (R-Conway) sponsored SB658, which would protect borrowers from predatory lenders by requiring all fees be included in the 17 percent APR.

His bill, alone among four dealing directly or indirectly with predatory lenders, aims to protect borrowers.

It passed the Senate on March 13 with 29 votes, and last Wednesday it was returned to the House floor from the House Insurance and Commerce Committee, where it awaits a final reading.

The gist of Rapert’s Senate bill is that all fees must be included and calculated in the interest calculation, which under state law continues to be capped at 17 percent.

Rapert’s bill would have sealed a phantom loophole that out-of-state lenders claim exists to make predatory loans in Arkansas.

The bills were related to credit service organizations, which want to fill the void left when the General Assembly and the state Supreme Court outlawed payday lenders in 2008 and Attorney General Dustin McDaniel forced them to shutter their businesses.

The state constitution sets 17 percent APR as the interest cap on loans, and short-term, high-interest loans before 2008 often snowballed to several hundred percent, sometimes putting consumers in a financial hole they couldn’t dig out of.

Now, presenting themselves as credit-service organizations, businesses such as Credit Max Loan Services, which has a payday lending pedigree, agreed to make loans within that limit, but they don’t calculate other fees such as loan closing fees and account handling fees as interest. Rapert’s bill requires all fees be calculated into the interest rate.

Credit-service organizations would allow consumers to take out three loans at a time and roll them over every fourth month. Once again it would be possible for consumers to find themselves buried in debt.


In 2007, H.C. Hank Klein, a Sherwood resident and former CEO of the Arkansas Federal Credit Union, led the charge that sent payday lenders packing.

Back in 2006, there were more than 250 fast-cash storefronts in Arkansas. The industry was thriving, and it was taking in more than $25 million in fees and interest rates alone each year, according to the industry website fastcash.org.

But by 2008, these loans were illegal. Attorney General Dustin McDaniel called payday lending “unlawful and unconscionable,” arguing that these businesses made most of their money by targeting the working poor.

Some lenders were near the front gate of Little Rock Air Force Base, hoping to do business with airmen who might be between paychecks, and Klein’s office at the time was in the nearby branch of the credit bureau. He worked tirelessly with AARP and others to rid the state of the predatory lenders, and it was Klein who again sounded the alarm when Cash Max opened in North Little Rock and Hope and again when three bills harmful to such consumers showed up in the 91st General Assembly.

In July, Klein alerted the North Little Rock City Council and the state Attorney General’s office that Cash Max was operating and charging usurious rates. The city told the business it had the wrong licenses and could not operate, but Cash Max, owned by Cheney Pruett of Texarkana, ignored the city.


Klein said the city notified Attorney General Leslie Rutledge’s office, apparently expecting her to order Cash Max to close as former Attorney General Dustin McDaniel did many times with payday lenders.

According to Cash Max’s website, the annual percentage rate on a $300 loan is 280 percent.

It took Rutledge’s office 10 months to respond to Klein’s letter with a phone call notifying him that they got his letter but that he didn’t have standing and thank you very much, he said Tuesday.

Pruitt and his associates own dozens of payday lending or credit service companies, many in Ohio, others in Texas.

Also shot down Tuesday afternoon, HB1742, which removes class actions protections deceptive practices suits.

That bill, limiting class actions suit and damages in deceptive-practice suits, passed with 53 votes in the house Tuesday.

HB1743, subtitled “Con-cerning a civil action involving a deceptive trade practice; and to define the measure of damages in a case involving a deceptive trade practice would eliminate class actions suits in the case of deceptive trade practices, making suits nearly impossible.”

HB1743 is now headed to the Senate.

“It was the successful litigation of private attorneys that enabled Arkansas to rein in the usurious payday lenders in 2008 who targeted our poor communities in violation of our usury laws for more than a decade,” Klein said.

Senate Bill 671, subtitled “To regulate installment loans; to establish the Arkansas traditional installment loan act and to declare an emergency,” has languished in the Senate Insurance and Commerce Committee since March 6.

The interest rate is capped at 17 percent, but the payday lenders say monthly handling charges of as much as $36 and a 10 percent loan closing fee—as much as $500—shouldn’t be considered as interest.

“Just like traditional payday loans, these loans are designed to be long-term debt traps,” Klein said.

“Refinancing is not a side-effect; it is core to the business model. The bill is backed by Mississippi-based high-cost lender Tower Loans,” he said.

HB1958, sponsored by Rep. Michelle Gray and Sen. Bart Hester would legalize credit service organizations like Cash Max to charge a fee to facilitate a third-party loan.