"I need help to make sure my kids are taken care of when I go to jail." That was the first thing I heard from the first payday-loan victim who called my office in 1997.
She explained that she had received a $300 loan in exchange for writing a personal check to a payday lender. Because of other bills, like food and rent, she had gone several months without being able to muster up the $350 it would require to "buy back" her check. During that time, she had paid over $2,500 in "fees" and still owed the original $350. The lender told her that if she stopped paying, she would be criminally prosecuted for a hot check.
I assured the woman that she could not be prosecuted for defaulting on a loan and told her that the payments, which amounted to interest in excess of 500 percent, were likely illegal and unenforceable.
Over the next few years, several lawyers and I started helping other victims who had also paid thousands of dollars in "fees" for small cash loans. In response to these lawsuits, the payday lenders lobbied the General Assembly to pass a bill to authorize their usurious lending practices. Even though usury was prohibited by the Arkansas Constitution, widely criticized by the media and condemned in the Bible, the lobbyists prevailed and the Arkansas Check Cashers Act took effect in 1999.
Even though the act purported to legitimize payday loans, victims continued to challenge those practices under the usury protections of the state constitution. From 2000 through 2008, Chris Averitt, Jay Scholtens, Dan Turner and I filed scores of lawsuits. Judges from Arkadelphia to Jonesboro uniformly held the act unconstitutional and refused to enforce payday-loan transactions. Some of these lawsuits led to usury judgments that could not be satisfied because the businesses were operated by foreign corporations that had little to no physical assets. In some instances, the state agency that was supposed to be regulating payday lenders actually allowed the lenders to cancel surety bonds so that they would not have assets to pay judgments.
Even though dozens of judges had ruled that these loans were unconstitutional, payday-loan stores continued popping up around the state, snatching hundreds of thousands of dollars in "fees" from low-income Arkansans. Since the Legislature made no effort to repeal the act, a separate lawsuit was filed in 2003 to strike down the law.
After five years of litigation and three appeals, the Arkansas Supreme Court struck down the act in 2008. Almost immediately, Attorney General Dustin McDaniel came to the aide of Arkansas consumers and demanded that payday lenders terminate their operations in Arkansas.
I spoke to hundreds of payday-loan victims over the years, and not a single one of them ever asked how much money they could make for their claim or whether they would get any refund for usurious loan payments. Instead, they all had the same question: Can you do anything to get me out of this?
Fortunately, the victims were able to seek protection under the Arkansas Deceptive Trade Practices Act (DTPA) which generally provides relief against unfair or deceptive business practices. By pursuing DTPA claims, consumers were rescued from the payday-loan debt cycle, even in cases where they could not get a refund or collect money for fees or costs of litigation. In every case, our primary objective was to stop the unlawful practices of charging triple-digit interest rates.
Unfortunately, there is now a move afoot in the General Assembly to authorize a new form of payday lending. As the payday lenders learned last time, a law authorizing usurious interest is subject to challenge as long as there is a mechanism for victims to have their day in court. Consequently, there is a concurrent effort to gut the consumer protections provided by the DTPA which would make it almost impossible for a consumer to challenge a usurious loan.
It took a lengthy process of private lawsuits, public activism, court rulings and attorney general enforcement before the state was finally rid of payday lenders. Now they are trying to return.
By making loans at 300 percent to 1,000 percent interest, payday lenders have a high profit margin. They also have a strong lobby. The same is not true for people who don't have $350 in their checking account.
The use of usury to unfairly indenture others to the point where they fear for their liberty has been condemned since the dawn of civilization. Payday lending was bad for Arkansans in the last decade and it would be inexcusable to allow its return to our state.
Hopefully the Legislature will consider this and will resist efforts to weaken our consumer-protection statutes and reject any bills that would subject our citizens to the return of usurious lending practices.
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Todd Turner is a partner in the law firm of Arnold, Batson, Turner and Turner in Arkadelphia.
Editorial on 03/13/2017