LITTLE ROCK, Ark. (Legal Newsline)-Attorney General Dustin McDaniel said Wednesday that payday lenders that promised to close their doors are still trying to collect on outstanding high-interest loans they issued in the state.

The attorney general's office is trying to determine which of dozens of lenders who agreed to shut down and stop collecting on high-interest loans have in fact have done so, spokesman Gabe Holmstrom told Legal Newsline.

On March 18, McDaniel sent a cease-and-desist letter to 156 lenders notifying them that the state constitution caps interest that may be charged at five percent per annum above the Federal Reserve Discount Rate at the time of the contract, or 17 percent currently.

In his letter, McDaniel demanded that the lenders stop issuing high-interest loans as well as cease collecting on their firm's outstanding debts.

"It is the position of this office that you must cease and desist your payday lending practices," he wrote. "In addition, I hereby demand that you void any and all current and past-due obligations of your borrowers, and refrain from any collection activities related to these payday loans."

In an interview with LNL this week, an industry spokesman said some payday lenders in Arkansas plan to stop doing business, and that could harm some consumers.

Lyndsey Medsker, a spokeswoman for the Community Financial Services Association of America, said without payday loans some Arkansans might be faced with more expensive alternatives to payday loans such as accruing bounced check charges, late payment fees, and going to unregulated off-shore Internet lenders for short-term cash.

"Eliminating payday loans as an option does not eliminate the need for short-term credit," Medsker said.

"The bottom line is that working adults are best served when given a variety of options and trusted to make financial decisions based on what's best for them and their families," she added.

From Legal Newsline: Reach reporter Chris Rizo by e-mail at chrisrizo@legalnewsline.com.