Good Riddance to Check Cashers (Editorial by Gwen Moritz)

The Arkansas Supreme Court finally, finally realized what should have been obvious nine years ago: The Check Cashers Act of 1999, which tried to legitimize the usurious practice of payday lending, was a blatant violation of the state constitution.

When the news of the ruling came out in November, a friend e-mailed to say, “Thanks for helping run them out of town.”

Well, I’ve made no secret of my personal disdain for the loan sharks, and Arkansas Business and the Northwest Arkansas Business Journal has editorialized against them as well. But, as I told my friend, I tried but failed.

Nothing I did played any role in killing the payday loan industry in Arkansas (assuming it is actually dead).

I give Attorney General Dustin McDaniel some of the credit. He did, after all, order them to close up, and most of them did.

But the real credit goes to the state Supreme Court, whose ultimate ruling more or less closed the door after most of the loan sharks had left the state.

Earlier this year, the justices ruled that the surety bonds that the Check Cashers Act required the payday lenders to post were available to pay court-ordered damages to victims.

Victims had been suing and winning all over the state, but the Board of Collection Agencies, which supposedly regulated check cashers, had refused to let victims tap the surety bonds in order to get damages.

When the Supreme Court said the bond underwriters would have to pay, it meant the business of bonding payday lenders was suddenly very, very risky.

If that decision didn’t kill off all of the payday lenders, it would have certainly reduced the infestation pretty dramatically.

Whenever the subject of payday lenders comes up on the famously liberal Arkansas Times blog (www.ArkansasBlog.com), one of the anonymous commentators invariably starts to rue the loss of such a valuable service to poor Arkansans who will undoubtedly then be forced into drug dealing or prostitution. Or something like that.

But storefront payday lenders didn’t exist in Arkansas before 1999, and cash-strapped Arkansans can certainly go back to whatever they did for the first 163 years of statehood.

No matter what the cash-flow problem is, a loan at 300 percent APR is not the solution.

I also grow weary of the red herrings who compare payday loans with the overdraft fees that banks charge. Either they are too dumb to see the obvious difference or they think the rest of us are.

A bank customer can use a checking account indefinitely without incurring any overdraft fees at all.

Only by misusing the checking account does he incur a fee that, if calculated as interest, could be considered usurious.

It is just as reasonable to consider these fees to be a punishment for not following the rules.

But customers of payday lenders always incur usurious fees, even if they follow the rules and pay off the loan on their very next payday.

I am not defending the ridiculously high overdraft fees that banks have taken to charging.

It wouldn’t bother me at all if some kind of limit on overdraft fees was enacted. But my point is this: There’s no reason the two utterly different products should be linked at all.

I also hate to hear pawn shops disparaged in the same breath as payday lenders. Pawn shops may be usurious – and if they are, they should be shut down – but they aren’t anywhere near as evil as payday lenders.

Here’s why: You can’t pawn next week’s paycheck. You can’t pawn next month’s groceries. In fact, it’s pretty hard to pawn any of life’s necessities.

If you pawn a TV and can’t afford to reclaim it, you can walk away free and clear. You may not have received the true market value of the TV or the trombone or the stereo speakers, but you aren’t caught up in indentured servitude the way you are with a payday lender.

I may not have been much help in ridding Arkansas of the bloodsucking payday lenders, but I’m thrilled to see them go. Don’t bother to send a forwarding address.                

(Gwen Moritz is editor of Arkansas Business. E-mail her at [email protected].)