Banning Payday Lending May Hurt Some

[cashlenders]

ROGERS - Jason Sandlin used a payday lender and didn't feel he was being preyed upon.

He has worked for the same company for 14 years and has a checking account, but a two-year dispute with his insurance company ruined his credit and payday loans kept food on his family's table through February and March.

Sandlin used B And K Check Cashers, 105 South Third St. in Rogers, to keep his family afloat for a couple of months after his twin four-year old sons had surgery in February at Arkansas Children's Hospital in Little Rock.

"I'm 32 years old and my credit is dead," Sandlin said. "Banks aren't going to help me and give me a loan."

Attorney General Dustin McDaniel announced March 19 he was sending letters to all payday lenders in the state asking them to stop making loans immediately, according to a news release obtained from the Arkansas Attorney General's Web site.

"Charging consumers interest in the range of 300 to 500 percent is unlawful and unconscionable, and it is time that it stops," McDaniel wrote in the release.

But Graham Street disagrees with McDaniel about the interest rate. Street is the chief operating officer of Payday Money Stores, which operate two stores in Fayetteville and one each in Bentonville, Rogers and Springdale.

"We're required to put an annual percentage rate on our contracts, but we aren't charging people interest," Street said. Payday charges a $15 fee for a $100 loan, which must be paid back at the end of a two-week period, Street said.

When applied to Payday's terms, the annual percentage rate is 390 percent, which anyone would balk at, Street said. "But we don't let people take out loans for a year," Street said.

"What we provide is a fee-based service. We don't charge people interest," Street said. "Whether people want to admit it, we are cheaper than most of the alternatives."

Some people will take out another loan immediately after paying off the other loan, but that is a small percentage of their customers, Street said.

"Eliminating payday loans does not do anything to solve problems for people needing short-term loans," Street said. "The demand for our service is because people are making financial decision that are in their best interest. Payday loans are cheaper than bouncing checks and better that taking your TV to a pawn shop and losing it," Street said.

Louie Hudgins is the owner and operator of Pawn USA, 901 South Eighth St. in Rogers. Hudgins used to be a payday lender, but said he stopped the day he received the letter from McDaniel.

He has seen an increase in the number of people coming in his shop to pawn items since he stopped making payday loans.

Hudgins said 90 percent of his payday loan customers just needed a short-term loan to get them through until payday. Most of the loans he made were between $150 and $250. The maximum loan Hudgins would give was $350 for two weeks, which would cost $50 if it went 14 days. Less than 10 days and the fee was $35.

Usually it was for a medical bill or something else that was unexpected, Hudgins said.

About 30 percent of his payday lending customers were elderly people who needed help buying prescription medication.

People come in now and want to know what they can do, Hudgins said.

Street cited a study by the Federal Reserve Bank of New York that studied payday lending in Georgia and North Carolina where the practice was banned in May 2004 and December 2005, respectively.

"Georgians and North Carolinians do not seem better off since their states outlawed payday credit: They have bounced more checks, complained more about lenders and debt collectors, and have filed for Chapter 7 bankruptcy at a higher rate," according to a report issued by the Federal Reserve Bank of New York.

"Hawaiians' debt problems declined, and became less chronic, after Hawaii doubled the maximum legal 'dose' of payday credit in 2003," the report states.

Street said Payday will continue to provide payday loans.