Although this story comes from Georgia, not Arkansas, it is still an important reminder of how payday lending can quickly turn into debt and serious trouble. And, since Arkansas made all payday lending illegal nearly five years ago, a lawsuit by the state attorney general may be an effective way of combating the risky financial activity here, too.
A payday loan is best described as a short-term loan that comes with astronomically high interest rates or fees. The loans also come due within a few weeks or a month, which means that an Arkansas borrower will need to quickly be able to come up with a considerable amount of money or he or she could find him- or herself in a lot of trouble. In some of the worst-case scenarios, people may need to file for personal bankruptcy after being unable to pay back payday loans.
Georgia has similar laws forbidding payday lending and, in an effort to enforce that law, the state’s attorney general has recently filed a lawsuit against a handful of lenders, seeking their immediate closure. According to the filings, some of the lenders use loans that have interest rates that top 340 percent. To break this down further, it means that someone who borrows a little over $2,500 will need to pay $14,000 by the time the loan comes due. For someone in desperate need of a short-term loan, it is highly unlikely that he or she will be able to cover the cost of the loan.
While the Arkansas attorney general has not filed his own lawsuit against payday lenders, there does not appear to be anything that would prevent him from doing so in the future.
Sources: Clayton News Daily, “Olens files suit to protect Georgia consumers from illegal payday lenders,” Kathy Jefcoats, July 31, 2013
Got Your Back Arkansas, “Illegal Payday Lending”