Earlier this Summer, the Arkansas Supreme Court affirmed the effectiveness of the 89th Amendment to the Arkansas Constitution, which was approved by Arkansas voters last November. For consumer credit, the amendment permits creditors other than federally insured depository institutions to charge interest on loans or contracts up to a maximum rate of 17% per annum. 

Previously, the Arkansas Constitution only permitted interest at the lesser of (i) 17% per annum or (ii) 5% per annum in excess of the 90-day commercial paper rate announced by the Federal Reserve Bank of St. Louis. Contracts charging a rate exceeding 17% per annum were void as to both principal and interest; contracts charging a rate exceeding the rate in clause (ii) above were void as to unpaid interest.

The Arkansas Constitution’s prior restrictions significantly restricted availability of credit to Arkansas consumers, and led to many lawsuits alleging usurious rates. With the exception of out-of-state national banks (which enjoyed the ability under federal law to export rates from their home states), many lenders and creditors ceased or significantly curtailed their consumer credit business in Arkansas. The enactment of the 89th Amendment and the Arkansas Supreme Court’s decision should have the combined effect of raising rates to market levels and increasing availability of consumer credit to Arkansas residents.   

The amendment also conforms the Arkansas Constitution’s rate restrictions to the rate parity provisions of the Gramm-Leach-Bliley Financial Modernization Act of 1999, which permits federally insured depository institutions in Arkansas to charge interest at any rate which may be charged by an out-of-state bank’s branch bank located in Arkansas.