Benton County Suit Leads to Dent in Check Cashers Act

The check cashers knew they were skirting the Arkansas Constitution by charging high-percentage “fees” for “deferred presentment” of personal checks. That’s why their association had its lawyer, Tom Hardin, draw up the bill that became the Check Cashers Act of 1999.

The industry volunteered for a modest level of regulation by the Board of Collection Agencies (which, curiously, had no previous experience in regulating lending institutions). In exchange, these storefront establishments would be allowed to charge steep fees for cashing a personal check and waiting until the customer’s next payday before depositing it.

They scrupulously avoid referring to these “payday advances” as loans. And under the bill that Hardin crafted — and which Sen. Doyle Webb, R-Benton, and Rep. George French, D-Monticello, gamely shepherded through the last legislative session — the fees “shall not be deemed interest for any purpose of law…”

That’s referring to state law that limits consumer loans to 17 percent per annum; these payday lenders do comply with federal truth-in-lending laws that require them to reveal to customers that the fees amount to annual percentage rates of 300 to 700 percent.

In other words, a registered check casher could give a customer money today under a contractual agreement to get even more money in repayment on a specific date. Under federal law, which doesn’t limit usury as long as it it revealed to the customer, these transactions are loans with enormous interest rates. But under Arkansas law, which has the strictest usury limit in the country, they aren’t loans and no interest is charged.

A reasonable person (not to be confused with the 33 senators and 91 representatives who voted for it or the governor who signed it) could see that the Check Cashers Act was a transparent attempt to legitimize an activity that was patently illegal. This would have been pointed out to legislators by a couple of assistant attorneys general had their request to do so been granted. (Attorney General Mark Pryor assures us that the orchestrated series of campaign contributions he received from the check-cashing industry had nothing whatsoever to do with his decision not to oppose a bill that appalled some in his office.)

With the law on their side for the past two years, payday lenders were fruitful and multiplied. Arkansas, historically so unfriendly to lenders that we don’t even have a finance company industry, suddenly became the check cashers’ Promised Land — a land flowing with low-wage workers who could use a quick fix of cash.

The number of establishments with names like Show Me the Money and Quick Cash grew from a few dozen to a few hundred. Their advertising became increasingly brazen — it’s easy to start acting legitimate when all but three state legislators have said you are.

Sen. Cliff Hoofman, D-North Little Rock, repented of his 1999 vote and tried to repeal the Check Cashers Act to no avail. The Arkansans who can least afford it were easy prey for two years.

That’s how long it took for the inevitable lawsuit to make its way from Benton County to the state Supreme Court. On March 22, the court without dissent declared the obvious: The portion of the Check Cashers Act that said fees are not interest was “an invalid attempt to evade the usury provisions of the Arkansas Constitution.”

I think it’s fair to paraphrase Associate Justice Annabelle Clinton Imber’s properly legalistic language in the opinion this way: “Listen up, legislators: You don’t tell us what’s constitutional in this state; we tell you.”

The Supreme Court has found the heart of the Check Cashers Act unconstitutional, just as Attorney General Pryor’s assistants predicted it would. Now the Money Store Inc. will have to convince Benton County Circuit Judge Tom Keith that the money it gave Crystal Luebbers in exchange for what its federal truth-in-lending statement called an annual percentage rate of 372.4 percent did not exceed Arkansas’ 17 percent usury cap. And the Money Store will have to make its case without hiding behind the Check Cashers Act.

I’d buy a ticket to hear that argument.