Last November, Arkansas voters approved a constitutional change that raised the interest limit on consumer loans to 17 percent.
Barely 100 days later, the so-called "installment loan industry" has lobbyists at work on legislation to remove the interest cap on loans of less than $5,000. Former House Speaker Robbie Wills signed up almost immediately after leaving office to lead the lobbying.
Wills and the industry paint this as almost a public service for needy people. Pay no attention to the 11 percent signature loans on offer at credit unions if you put down $25 in a savings account.
The loan sharks have proposed a 36 percent interest rate for starters — expressed less ominously as $3 monthly for every $100 borrowed. But that is not the whole story. Every loan will also carry a 10 percent origination fee, upfront. In other states where these loan sharks operate, some carrying charges are also applied. Miss a payment by a day and you'll incur a 5 percent late fee. These "charges" are all cloaks for interest.
One expert in the lending industry told me the installment lenders will take more out of the pockets of consumers than the blood-sucking payday lenders, only recently run out of the state.
Testimony offered in Oklahoma in 2006 by a lawyer who'd sued the industry describes how the lenders talk borrowers into renewing loans, with punishing new origination fees each time. The lawyer, who won a huge court verdict against the lenders, said the lenders preyed on, among others, mentally and physically handicapped with disability check income. He said the companies made enormous profits, but managed to avoid Oklahoma tax liability with a variety of accounting tricks.
There's no demonstrated need to open the door to loan sharks this soon. Nor is there evidence that 50 percent interest rates are necessary to make a profit in a day when financial institutions pay barely 1 percent on deposits.
Nonetheless, an unholy alliance comprising primarily Republicans and black Democratic legislators (the latter nominally representatives of poor people, though you couldn't tell it by many of their corporate campaign contributors) has emerged to push the loan sharks' cause.
Notable was an aggressive freshman, Sen. Jason Rapert of Bigelow. He's a preacher, financial adviser and sponsor of some of the worst legislation this session — more guns on college campuses, a big tax break for the wealthy, drug testing for unemployment recipients. Though he wants smaller government — and has a constitutional amendment to make tax increases all but impossible — he's also a hypocrite. He's filed a clutch of bills to direct state pork barrel spending to his district.
But what got me most about Rapert was his comment on Jason Tolbert's blog in which he drew a parallel between the loan shark bill and microfinance. Microfinance has been employed wondrously in the Third World to make tiny loans to encourage small businesses. It's about adding value to people, not piling ruinous interest on them.
Rapert declaimed with a straight face: "This concept is virtually the same as the concept of microfinance — which is embraced by humanitarian organizations around the world as the savior of poor people who are denied access to credit."
Humanitarian Rapert said that should he get any indication the poor were being taken advantage of, he'd work to defeat the legislation. Given the persuasive testimony of consumer advocates and experience in other states plundered by the loan sharks, it would seem to be time for Rapert to get to work.