State High Court To Decide When FeesAmount To Interest
LITTLE ROCK, Ark. - (12/21/04) -- Opponents of payday lending areawaiting a ruling by the state Supreme Court that is expected todetermine whether exorbitant fees charged by payday lenders areactually interest and thus violate the state's usury law. The stateHigh Court has been asked to rule on the constitutionality ofArkansas's Check Cashers Act, which defines charges amounting to asmuch as 660% of a loan a year as fees, thus allowing payday lendersto evade the state's 17% cap on interest rates, according to HankKlein, president of Arkansas FCU, who is leading a charge to reignin the state's proliferating payday lenders. "The Federal Reservehas already ruled on this issue and they said it was interest,"Klein told The Credit Union Journal. The head of the state'sbiggest credit union, Klein has organized a broabased coalition ofconsumer groups that is working on legislation to bring the paydayloan companies under the state's usury laws. The group, ArkansasAgainst Abusive Payday Lending, has enlisted Consumer Federation ofAmerica, AARP, NAACP, AFL-CIO, Consumer Credit Counseling andBetter Business Bureau, but has failed so far to enroll the help ofthe state's credit unions or banks. The credit unions and banks,said Klein, are worried that if fees are considered interest, itcould affect the non-sufficient funds (bounced check) fees theycharge. Reta Kahley, president of the Arkansas CU League, said theyhave talked to Klein about the issue but have not seen thelegislation yet so could not comment.