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Nation's largest payday lender looks at possibly pulling out of Arkansas

March 21, 2006 - Little Rock, Arkansas

The nation's largest payday lending company is considering possibly shuttering its 30 stores in Arkansas, a move that a leading critic of the industry said Monday he hoped would begin a mass exodus of payday lenders from the state.

Notification of Advance America Cash Advance Center Inc.'s decision to possibly pull out of Arkansas was contained in a one-paragraph note that was part of the publicly traded South Carolina company's 100-page quarterly filing with the Securities and Exchange Commission on Thursday.

"The lending bank for which we market, process and service payday cash advances and installment loans in Arkansas will cease originating installment loans in April 2006 and will cease originating payday cash advances in June 2006," Advance America said in the SEC filing.

Jamie Fulmer, spokesman for the nation's largest payday lending operator, said the bank that markets its payday lending has cease operations in Arkansas so the company is "considering its options."

"We hope to stay in Arkansas and keep our stores operating there so we can continue to provide Arkansas consumers with a short-term financial option," Fulmer said.

Last month, Advance America said it was studying alternative methods for conducting business in the two states but had not decided if it would cease operations that brought in nearly $90 million in revenue in 2004 and 2005.

Besides Advance America, anti-paying lending advocates say other out-of-state banks that provide payday loans also could be exiting the state due to a recent Federal Deposit Insurance Corporation determination to crackdown on payday lending by examining their partnerships with state-chartered banks.

"That is 30 stores that are leaving, now we have 235 more to go," Hank Klein, president of the Arkansans Against Abusive Payday Lending, said Monday.

Last month, Advance America announced that the FDIC was investigating the bank business model that the payday lending giant uses to do business in Arkansas, Pennsylvania and several other states.

The company said on Feb. 22 that federal regulators had instructed certain banks to discontinue offering payday cash advances and alternative credit products if they could not adequately address the FDIC's concerns regarding those products. It said the directive "may require the lending banks in Arkansas and Pennsylvania to discontinue providing payday cash advances and installment loans."

Since its warning to investors, Advance America had shut down 117 retail centers in North Carolina and 101 in Pennsylvania before advising the SEC of its decision to close its 30 stores in Arkansas.

The company operates in Arkansas through a partnership with First Fidelity Bank of Burke, S.D.

In recent weeks, the FDIC has stepped up regulation of shell banks like First Fidelity, issuing a warning that these financial institutions practice a "particular type of subprime lending."

"This guidance is necessitated by the high-risk nature of payday lending and the substantial growth of this product," the FDIC said recently.

Klein blamed loopholes in Arkansas' Check Cashers Act of 1999 for allowing the payday loan industry to expand in the state and circumvent the usury provision of the state constitution, which limits interest rates on consumers loans to 17 percent annually.

He has also accused the Arkansas State Board of Collection Agencies of lax regulation of the act that has allowed most of the state's 275 payday lending operators to go unregulated.

ASBCA Executive Director Peggy Matson said state rules prevent licensed check cashers from offering "deferred presentment" checks over $400, yet allow some out-of-state banks affiliated with check cashers not licensed in Arkansas to hand out small "loans" over that amount.

Klein said he now hoped other so-called out-of-state banks that exploit the state's usury law will soon leave Arkansas.

Company executives with Dallas-based Ace America's Cash Express, which also received warnings from the FDIC last month about its bank-based payday lending practices, did not return calls seeking comment. The publicly traded rival of Advance America has 20 stores in Arkansas run by Republic Bank & Trust Co. of Louisville, Ky.

Ace announced Feb. 21 that it would exit the payday lending business in Texas, but had not yet decided what to do about its Arkansas and Pennsylvania locations.

Other out-of-state banks with operations in Arkansas include First American Cash Advance, which runs 30 payday loan storefronts in Arkansas through a partnership with Burke, S.D.-based Community State Bank. Rushmore Loan Co., based in Sioux Falls, S.D., operates 55 short-term loan stores across the state under the names of Money Depot, Show Me The Money, Cash 4 U and Check N Tote.

Another 50 or so payday loan operations in Arkansas are incorporated in Missouri or describe themselves as "Internet rebate lenders," including a Jonesboro check-cashing operator that Attorney General Mike Beebe sued recently for charging up to 520 percent in interest for a $300 Internet loan.

Proponents of the payday lending industry say there is a need for low-cost, short-term credit options such as payday loans. They say the practice is similar to bounced-check fees charged by banks and to late charges on utilities, phone service and credit cards.

News Source

Arkansas News Bureau, Wesley Brown, Staff Writer

Related Stories - Advance America Cash Advance Centers Inc. (NYSE: AEA)

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