Legislative bills focus on high-cost lenders in state

One lawmaker is trying to keep low-dollar, high-cost lenders out of Arkansas. Others offer bills that would put those lending practices in state law.

Seven years after the last payday lender closed its doors in the state, a new sort of business that facilitates small, short-term loans opened storefronts last year in North Little Rock and Hope.

CashMax charges up to 280 percent interest on loans, as calculated by the company under the federal Truth in Lending Act guidelines. Arkansas caps interest rates at 17 percent under Amendment 89 to the Arkansas Constitution.

Arkansas Attorney General Leslie Rutledge, whose office received a complaint about the business nine months ago, has been silent on whether the law allows that practice.

The company says it complies with Arkansas law because fees -- which count as interest under the federal law -- don't count as interest under state law.

Senate Bill 658 by Sen. Jason Rapert, R-Bigelow, would outlaw that practice.

"The state of Arkansas has been very clear that predatory lending is not welcome in our state," he said. "That meant the closure of what has been known as payday lending entities across the state and a stop to the predatory lending practices that we had seen happening -- preying on poor individuals, down on their luck."

But Cheney Pruett, chief executive of CashMax, said the business provides a necessary service that would otherwise go to pawnshops or worse.

He said an internal survey found that 81 percent of customers had high or moderate financial stress, 79 percent are in need of money and 41 percent have done business with a pawnshop.

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"Those who oppose our services should be shocked when they hear these statistics, but I really don't believe they will be," Pruett said. "I honestly believe they do not care. Even though they have never faced the same circumstances of any of our customers, for some reason, they still feel like they are in a better position to make financial decisions on their behalf."

Among other things, Rapert's bill would specify that loans "include interest, expenses, and charges incurred with the making of the loan."

It was approved by the Senate Insurance and Commerce Committee on Thursday. Rapert said he expects to present the bill todayon the Senate floor.

He said he will oppose legislative efforts to allow businesses like CashMax to operate in the state.

Those include House Bill 1958 by Rep. Michelle Gray, R-Melbourne, and Senate Bill 671 by Sen. Bart Hester, R-Cave Springs.

HB1958 would add language to state law specifying how "credit services organizations" can offer guaranty services, which CashMax is doing.

An example of an installment loan provided by CashMax: The customer applies for a loan for $600. He must repay $893.25. It's split into seven biweekly payments. Interest on the loan, which is provided through a third-party company, totals $24.75. But the consumer also must pay a credit services organization fee to CashMax of $268.50. In this example, that includes a fee for a loan guaranty, so the credit services organization will back the loan if the consumer does not pay.

In the example above, annual interest equals 259.79 percent, when calculated under the Truth in Lending Act guidelines.

Gray said Friday that she's listening to constituents and figuring out whether she wants to move forward with the bill.

"What I'm hearing is there's a need for this service -- it only goes up to $1,000 on the loans -- there's a need for this service, so we don't want you to do away with it, but we want you to help protect us," she said.

Pruett cited a 2016 Federal Reserve study that found that 46 percent of Americans don't have enough money to cover a $400 emergency expense.

"I know our customers are hardworking and intelligent Arkansans that are capable of making sound financial decisions on their own behalf," he said.

And Gray said CashMax does fill a need.

"It's easy -- they call it 'marble fever' -- you get inside the Capitol and because you are there from daylight until dark and sometimes more ... you forget, sometimes, the need," she said. "For my district, there is a need for this service. We just have to make sure the protections are there."

Gray said her bill mirrors laws in Texas and Ohio. Outside of Arkansas, CashMax has more than 40 locations in Ohio. There, the business offers auto title loans and cash advances, according to its website.

The other bill -- SB671 by Hester -- would establish the "Arkansas Traditional Installment Loan Act."

The bill would apply to loans of less than $5,000. It says interest should not exceed 17 percent -- the constitutional cap -- but allows for fees on top of interest.

The bill also would require loan providers to determine if consumers have the ability to pay back loans by reviewing a credit report, preparing a budget and providing financial literacy information to the consumer.

Hester did not return a request for comment Friday.

Hank Klein, the former head of the group Arkansans Against Abusive Payday Lending, said Hester's bill would allow for interest -- including fees -- between 50 and 90 percent.

The group disbanded after then-Attorney General Dustin McDaniel forced payday lenders to quit operating in the state in 2008. McDaniel relied on an opinion by the Arkansas Supreme Court that found fees counted as interest.

Voters approved Amendment 89 -- the 17 percent constitutional cap on interest -- in 2010.

Klein complained to Rutledge's office nearly nine months ago about CashMax and has not heard back regarding whether the attorney general has any plans with CashMax.

Judd Deere, a spokesman for Rutledge, said, "Because he was not a customer of the business and had not been directly affected there was no recourse for him to pursue through the complaint mediation process."

In January, Sen. Jane English, R-North Little Rock, followed up by asking for an opinion from Rutledge on CashMax's business practices and if fees count as interest under the constitutional cap.

No opinion has been issued yet. Deere said the office did receive the letter and every effort is made to return opinions in a timely manner.

Rapert said there is broad opposition to bills that would enable companies like CashMax to flout the constitutional cap on interest.

"It's just not acceptable for someone to change the name or the classification of what they're collecting to try to evade the law," he said. "I feel that it is frankly immoral to prey upon people in that situation."

Deere did not address a question on whether the attorney general supported or opposed the various bills.

A question about the issue arose Friday when Gov. Asa Hutchinson addressed the Political Animals Club in Little Rock.

"I assure you that I will veto any bill that rips off Arkansas consumers," Hutchinson said. "I haven't looked at the bills. Obviously, I have expressed reservations in the past about exorbitant interest rates that could happen."

Information for this article was contributed by Michael R. Wickline of the Arkansas Democrat-Gazette.

SundayMonday on 03/13/2017