Strangling state usury laws

We've mentioned several times on this blog the epidemic of payday lending in the South and how it contributes to a cycle of poverty across the region.

Today comes word of a proposed federal law that would endrun Arkansas’s constitutional limit on interest rates for all but the payday lenders. According to the Arkansas Democrat-Gazette article:

The federal Regulatory Relief Bill with the Arkansas provision included easily passed the House. The provision would allow nonbank lenders — automobile dealers and retailers, for example — to charge the same interest rates that banks in Arkansas can charge. ...

If it passes, the law would make the Arkansas Constitution’s interest rate limitation moot for all businesses except for payday lenders, who are exempted from the proposed congressional change and still would be bound by the constitution’s ceiling on interest rates.

Consumer advocates say the change would forever end Arkansans’ right to set limits on usurious interest rates.

“It’s completely outrageous for any state that has the rights to set their own interest rates to be pre-empted by the United States,” said Margot Saunders, who is of counsel with the National Consumer Law Center in Washington. “Arkansas would go from the most protected state in the country [as far as usury law] to being worse off than 49 other states.”