State fights Net payday loan firms

In-store lending shut; not so online

— State officials shut payday-lending stores across Arkansas in 2009, but the attorney general’s office still is targeting a different type of short-term, high-interest lender — out-of-state companies serving Arkansans over the Internet.

Attorney General Dustin McDaniel’s office has won consent judgments in three cases against online payday lenders outside Arkansas in the past 19 months, has sued two more and is investigating yet another, Senior Assistant Attorney General Sarah Tacker said.

“These are lenders whose storefronts are not located here in Arkansas, but are providing loans” to state residents, she said.

Deputy Attorney General Jim Depriest said, “Payday loans ensnare consumers in a downward spiral of fees and costs.”

“Often, if a borrower is able to pay off a payday loan when due, the borrower must immediately borrow more just to meet expenses and must pay more fees for the privilege. As the borrower’s paydays click by, the payday lending fees keep piling up,” Depriest said by e-mail.

The companies have issued loans to an estimated 5,470 Arkansas residents, according to McDaniel’s office.

Payday lenders offer loans to consumers for a few days or weeks. The lenders often charge annual interest rates in the range of 300 percent to 700 percent per year, Tacker said.

The Arkansas Constitution sets the maximum loan interest rate that can be charged to state residents at 17 percent per year. National banks, which are regulated by federal agencies, are exempt and can offer credit-card interest rates higher than 17 percent, Tacker said.

Where the attorney general’s office has won judgments, lenders were required to cancel the loans. That meant some borrowers saw their entire loan balances forgiven. Others didn’t have to repay any remaining balance and fees. The lenders also paid the attorney general’s office tens of thousands of dollars for a special fund to be used to battle consumer fraud. And the judgments forbid the Internet lenders from making future high-interest loans in Arkansas.

The lending companies sued by the attorney general’s office were found online under names such as paradisecashadvance.com and bottomdollarpayday.com, according to one consent judgment against a Kansas City, Mo., company filed in August.

That judgment involved Josh Mitchem of Kansas City and at least six lending companies. They were accused of making high-interest loans to 2,821 Arkansas residents.

“A typical loan offered by the defendants to Arkansas consumers is around $400, with a finance charge of $120 payable in full in two weeks,” the August consent judgment said. “The annual percentage rate from such a transaction is 644.12 percent.”

The consent agreement said the attorney general’s office alleges “the practice of charging such ultra-high usurious rates of interest is unconscionable as a matter of Arkansas law.”

The defendants agreed to pay the attorney general’s office $80,000 to be used toward future consumer-fraud investigations and consumer education. The companies were ordered to adjust their websites to “clearly and conspicuously” notify Internet visitors that “they do not make or service loans to consumers residing in the State of Arkansas.”

Also in the agreement, the defendants — Mitchem and the Kansas City companies — also denied all claims by the attorney general. Mitchem’s attorney, Justin Allen of Little Rock, said Wednesday that he couldn’t comment further because he lacked permission to do so from his client. The consent judgment shows his signature, as well the signature of an attorney for six companies including Action PDL Services LLC (doing business as Action Payday), BD PDL Services LLC (BottomDollar Payday) and SCS Processing LLC (doing business as Everest Cash).

Other recent actions by McDaniel’s office against outof-state payday lenders or related agencies concern:

Geneva-Roth Capital Inc., Geneva-Roth Ventures Inc. and Mark Curry. “Defendants have offered loans of up to $600 to Arkansas consumers. For each $100 loaned, defendants typically charged a finance charge of $30,” according to a May 2011 consent agreement. The initial loan term is “two weeks to one month. The annual percentage rate ... can range from 364 percent to 1,365 percent.” The defendants denied the claims but signed the consent order, which required the companies to cancel loans, cease their current practices in Arkansas and pay the attorney general’s office $60,000.

Arrowhead Investments Inc., Galaxy Marketing Inc. and Christopher Hodes. An April 2011 consent order said the defendants lent up to $500 to individual Arkansas consumers at an annual percentage rate “as high as 782.14 percent.” The defendants denied the allegations but agreed to stop their practices in Arkansas, forgive loans and pay McDaniel’s office $30,000.

T. Ark Monroe III of Little Rock, attorney for Arrowhead Investments, said he had no further comment.

In March 2008, McDaniel sent letters to payday lenders who had shops in Arkansas telling them to “cease and desist” making high-interest loans. By the end of 2009, all of the state’s 230 payday-lending stores had closed.

The payday loan takes it name from the practice of a lender making a short-term loan that must be repaid on the borrower’s next payday.

Front Section, Pages 1 on 11/22/2012

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