Regulatory Bill Could Be Forum For Arkansas Usury Debate.

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Author: Swindell, Bill

Finance

Consumer activists are girding for a battle with Arkansas lawmakers over that state's usury law as part of a debate on a bill that would offer regulatory relief to banks, thrifts and credit unions. Sen. Blanche Lincoln, D-Ark., said she has the support of her state's congressional delegation in her attempt to allow nonbank lenders headquartered in Arkansas to charge interest rates beyond the state's stringent usury cap. Lincoln was unable to persuade the Senate Banking Committee to include the language as part of a narrowly tailored regulatory relief measure the panel approved Thursday. The measure is expected on the floor before the August recess. "There is a provision that is of great interest to our friends down in Arkansas, but it's not addressed here. I hope as we move to the floor we can get to that as well," Sen. Thomas Carper, D-Del., said during the markup.

The Arkansas usury law is set by the state constitution at a rate of 5 percent above the Federal Discount rate. But Lincoln contends the law is antiquated for a globalized 21st century banking system, limiting economic growth and capital available to businesses. She also argues the change would make credit more available to consumers. A major 1999 financial services law allowed state-chartered banks in Arkansas to charge the same interest rate as interstate banks that were already operating there. Lincoln argues that Arkansas nonbank lenders, such as car dealers and retailers, also should be placed on a level playing field with competitors that operate nationwide. "Competition from out-of-state nonbank lenders has begun to take its toll on Arkansas lenders and jobs," Lincoln told the Banking panel in 2004.

Consumer activists, civil rights groups and organized labor contend the provision, which was tucked into a House-passed companion measure, would harm consumers and short circuit a 1982 statewide vote that established the cap. "The voters of Arkansas have put into their constitution a usury cap. You got Arkansas politicians trying to override it," said Travis Plunkett, legislative director for the Consumer Federation of America. Opponents argue that adequate credit is fully available to Arkansas residents and that lifting the cap would result in higher interest rates and an increase in abusive lending practices. "It's pretty astonishing. The proposal would eviscerate the Arkansas usury cap and make Arkansas the only state in the county that has no usury protection at all for any kind of loan," Plunkett said.

Changes to the Senate bill, sponsored by Sen. Mike Crapo, R-Idaho, will be difficult as it represents a carefully crafted compromise that resulted in all sides receiving less than they had sought. Sen. Tim Johnson, D-S.D., said Thursday that Congress needs to address the issue of industrial loan companies, which are state-chartered banks offering limited financial services in seven states. Small community banks are concerned about the influence of the ILC industry, especially after Wal-Mart Stores Inc. has applied to the FDIC for an ILC charter to reduce costs of processing credit and debit card transactions. But Johnson said panel members had to exclude contentious provisions to secure passage this year of a regulatory relief bill. "I believe that this [ILC] issue deserves a separate, thorough and meaningful debate," Johnson added.

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By Bill Swindell