(CN) - The Arkansas Supreme Court struck down the state Check-Cashers Act, ruling that it violates the state Constitution by allowing businesses to make payday loans that can carry annual interest rates of more than 550 percent.
A group of Arkansas residents filed a class action claiming the Act violates Arkansas' anti-usury policy and the state Constitution. A circuit court agreed to rule on the law's constitutionality, but ultimately upheld the Act.
On appeal, the Arkansas Board of Collection Agencies countered that the Act complies with state and federal laws. It added that the lower court was not in a position to rule on the law's constitutionality, and that the plaintiffs failed to meet their burden of proving the Act unconstitutional.
After establishing that payday transactions constitute loans, and that the fees amount to interest, the state high court turned to whether the Act authorizes usurious transactions.
"We hold that there is no question that it does," Justice Danielson wrote.
If a customer cuts a check for $100, incurring a 10 percent interest rate and a $10 fee for a 31-day loan, the annual interest rate would be 294 percent. Sample contracts reflected annual rates ranging from 168.2 percent to 558.7 percent.
"Such rates of interest are clearly and unmistakably usurious and in violation of (the state Constitution)," Danielson concluded.
The court overturned the lower court's decision and remanded.
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.