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Predatory lenders exploiting fee loophole

As the age-old idiom goes, “Where there is a will, there is a way” may just be the thinking of a crafty and cleaver entrepreneur who seems to think his company has outwitted Arkansas’ efforts to prevent predators from taking advantage of those people among us who are in financial distress.

It has been seven years since then-Attorney General Dustin McDaniel forced payday lenders to quit operating in the state. Back then, McDaniel relied on an opinion by the Arkansas Supreme Court that found fees counted as interest and Arkansas caps interest rates at 17 percent under Amendment 89 to the Arkansas Constitution.

For nine months now, Attorney General Leslie Rutledge seems to be sitting on a complaint regarding a business, called CashMax, that charges up to 280 percent interest on loans.

This 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.

Well, one lawmaker, Sen. Jason Rapert, R-Bigelow, is now trying to get a bill passed that would address the manner in which CashMax operates, in what proponents of this legislation say is in the interest of the poor people of Arkansas who, they say, are being taken advantage of by this company.

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

Not everyone is of the same opinion as that of Rapert. For instance, Rep. Michelle Gray, R-Melbourne, and Sen. Bart Hester, R-Cave Springs, are sponsoring bills that would add language to state law specifying how “credit services organizations” can offer guaranty services, which CashMax is doing.

So, how does this situation impact people needing cash? An example of an installment loan provided by CashMax goes like this: The customer applies for a loan of $600. He must repay $893.25. It’s split into seven bi-weekly payments. Interest on the loan, which is provided through a third-party company, totals $24.25. 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.

The fact of the matter is that based on this example the annual interest equals a whopping 259.79 percent, which calculated under the Truth in Lending Act guidelines.

Rep. Gray seems to be of the opinion that despite the outrageous interest rate, fees and other costs she is hearing from her constituents they don’t want legislation prohibiting CashMax from loaning them money.

The argument from proponents is that if businesses like CashMax are run out of the state there will simply be other opportunists loaning money on the “black market” at high interest rates and in violation of state law.

Gray said her bill mirrors laws in Texas and Ohio.

Outside of Arkansas, CashMax has more than 40 locations in Ohio.

Opponents who were once members of a group called Arkansans Against Abusive Payday Lending, say Gray’s bill allowing such high-cost lenders would result in fees and interest to be as high as 90 percent, an amount we feel is outrageous and should be outlawed.