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| | Lincoln calls for change in Arkansas interest-rate caps
Wednesday, Jun 23, 2004 By Alison Vekshin Stephens Washington Bureau WASHINGTON -- Sen. Blanche Lincoln, D-Ark., on Tuesday called on Congress to change a banking law so Arkansas furniture stores, auto dealers and farm equipment sellers can offer the same financing deals to customers as out-of-state competitors. Lincoln said federal law discriminates against Arkansas businesses that provide financing for their goods. As a result, "out-of-state lenders are allowed to give credit that Arkansas lenders can't give," Lincoln said during testimony before the Senate Banking Committee. The issue stems from the Arkansas constitution, which contains a usury provision that caps interest rates that non-bank lenders can charge. In 1994, Congress passed the Riegle-Neal Interstate Banking Act that gave lenders from other states the authority to charge more. The result is that out-of-state companies are able to lure Arkansans by structuring more attractive financing deals for customers, business leaders say. David Bokker, chairman of the Arkansas Independent Auto Dealers Association, said he has noticed the impact of the usury restriction on his Forrest City-based used-car dealership. Bokker, who has owned his dealership for 50 years, said he has lost customers to dealerships in Memphis, 40 miles away. "There are people that we've tried to sell to and they can go to Memphis and buy with less money down for a longer period of time," Bokker said. He said the usury restriction factored into the 400 Arkansas auto dealers that went out of business last year. "All the bordering states have a much higher interest cap than we have," he said. "We need to have a fair chance." The interest rate cap in Arkansas has limited the availability of capital for start-up businesses, high-risk loans and low-income families, Lincoln told senators. A banking law Congress passed in 1999 corrected the problem for Arkansas banks by exempting them from the usury provisions in the state's Constitution. It did not make the same adjustment for non-bank lenders. With backing from the state's congressional delegation and Gov. Mike Huckabee, Lincoln has introduced legislation to add an exemption for Arkansas non-bank lenders, giving them the ability to adjust their rates to those of out-of-state competitors. "The inflexible cap on interest rates has restricted economic growth and development, caused billions of dollars in investments to leave the state, and prohibited the extension of credit to many Arkansans," Huckabee wrote in a letter that Lincoln submitted to the Senate. The Arkansas constitution, rewritten in 1874, caps interest rates at 10 percent. The cap was subsequently changed to a rate 5 percent above the primary credit rate. At the hearing, Sen. Paul Sarbanes, D-Md., questioned why Arkansas just doesn't amend its constitution rather than seek a change in federal law. "The Arkansas legislature meets every two years and can offer only a limited number of proposed amendments to the Constitution," Lincoln said. The proposal would have to go before the voters in a statewide election, she added, which "takes time and money." -- 30 -- |
