Payday lending is not legal in Arkansas. There are no licensed storefront payday lenders operating in the state, and any short-term loan carrying the triple-digit annual percentage rate (APR) typical of a payday product is unenforceable here. The reason is built into the Arkansas Constitution: Amendment 89 caps the interest rate on consumer loans and credit sales at 17% per year. A standard $15-per-$100 two-week payday loan works out to an APR near 400%, which is impossible to charge legally in Arkansas. In 2008 the Arkansas Supreme Court struck down the state law that had allowed payday lenders to operate, and by 2009 the industry had been shut down statewide. If a lender is offering you a payday-style loan in Arkansas today, it is almost certainly an out-of-state or online operator charging an illegal rate.
The Constitutional Rate Cap That Killed Payday Lending
Unlike most states, Arkansas writes its usury limit directly into its constitution rather than leaving it to the legislature. Amendment 89, approved by voters in 2010 and effective in 2011, replaced the older Amendment 60 and sets the ceiling on consumer credit. Under Amendment 89, the maximum lawful interest rate on consumer loans and credit sales is 17% per annum. For other (non-consumer) loans, the cap is 5 percentage points above the Federal Reserve Discount Rate.
This 17% consumer ceiling is the single most important number for understanding payday lending in Arkansas. Payday and "cash advance" products depend on fees that, when expressed as an APR, run into the hundreds of percent. There is simply no way to structure a conventional payday loan that stays under 17% and still makes the business model work. That is why Arkansas does not have a payday loan statute that sets a maximum loan amount, term, or number of rollovers the way states that permit payday lending do. The product does not legally exist here.
How Arkansas Got Here: The Check Cashers Act and the McGhee Decision
For years, payday lenders in Arkansas operated under the Check Cashers Act, which the industry argued allowed it to charge "fees" rather than interest, sidestepping the usury cap. In 2008, in McGhee v. Arkansas State Board of Collection Agencies, the Arkansas Supreme Court rejected that argument and held that the fees charged on these loans were interest for constitutional purposes and that the law authorizing them was unconstitutional.
Following that decision, the Arkansas Attorney General launched a coordinated effort to drive payday lenders out of the state, sending cease-and-desist letters to dozens of storefront operators. By 2009, payday lending had effectively ended in Arkansas. The combination of a hard constitutional cap and active enforcement is what makes Arkansas one of the strictest states in the country on this issue.
What Counts as an Illegal Loan
Because the cap is constitutional, a loan that charges more than the allowed rate is not just penalized, it is void as to the unpaid interest. In practice this means:
- A lender charging an illegal rate generally cannot collect the unlawful interest in an Arkansas court.
- Borrowers who have paid usurious interest may have a claim to recover it, and Arkansas law has historically allowed recovery of amounts paid above the legal limit.
- An agreement to pay an unlawful rate does not become legal just because the borrower signed it. You cannot "waive" the constitutional cap.
The cap applies to the substance of the transaction, not the label. Calling a charge a "fee," "service charge," or "membership" does not remove it from the interest calculation if its real function is the cost of borrowing money, exactly the point the McGhee decision settled.
Online and Tribal Lenders: The Real-World Loophole
The most common way Arkansas consumers still encounter payday-style loans is online. Out-of-state internet lenders, lenders claiming tribal affiliation, and "installment" lenders sometimes market high-cost loans to Arkansas residents. These lenders frequently claim that the law of their home state or tribe governs the loan, not Arkansas's.