Back in 2008, then Arkansas Attorney General Dustin McDaniel launched a campaign to rid the state of payday lenders.
The storefront lending operations advanced cash on post-dated checks. The interest and fees charged on these cash advances-payable every two weeks- often added up to 400 percent a year or more, far in excess of the state's constitutional cap on interest rates.
Critics said payday lending often trapped borrowers in a cycle they could never hope to escape, refinancing loans every two weeks because they could not afford to pay the principal. Sometime borrowers ended up paying much more in interest and fees than the amount of the loan.
Industry advocates say payday lenders provided an option to low-income individuals and families that traditional banks did not offer. Where else, they argued, could someone borrow a few hundred in a few minutes to pay for a car repair or prevent a utility from being shut off? They justified the high cost of such loans as necessary to make up for money lost to default.
The exit of payday lenders left and opportunity and it looks like a Texarkana businessman has come up with a way to fill it.
Cheney Pruett is the chief executive of CashMax, which has offices in North Little Rock and Hope. CashMax operates as a "credit service organization." A CSO typically consolidates credit card debt for a fee and allows borrowers to pay off their debts on a fixed schedule.
CashMax has turned that idea on its head, acting more as a broker for lenders who charge within the state's 17 percent interest-rate cap. But CashMax tacks on a hefty fee that, according to an article published Monday in the Arkansas Democrat-Gazette, adds up to an effective annual interest rate of nearly 260 percent.
CashMax says it is operating within the law. And it most likely is-at least the letter of the law, but definitely not the spirit.
According to the Democrat-Gazette, Arkansas AG Leslie Rutledge's office declined to comment on the matter. City attorneys from both Hope and North Little Rock say they have contacted the AG's office about the company.
Both sides in the payday lending argument have a point. These companies do provide a needed service for low-income people who need cash for an unexpected emergency. The only other options are going to a pawnshop-but they require collateral and some folks may not own anything of real value-or tapping a bank's "overdraft protection" service. But do that enough and the fees could top what you would shell out for a payday loan.
Still, high interest and fees do tend to trap folks on a limited income into a vicious cycle. Especially when theycan get two or more loans from different payday lenders.
It's time the state Legislature takes a good hard look at the state's usury law and any loopholes, as well as the philosophy of small loans in Arkansas. There has to be a compromise that will allow lenders to make a reasonable profit and borrowers to get the cash they need on short notice.
