The best business debt settlement companies in Arkansas will review your MCA agreement to determine if it is a loan under Amendment 89 to the Arkansas Constitution, which caps most loans at 17% per annum and voids contracts above it. If you have personally guaranteed the MCA, you will want a lawyer or law firm to represent you.
Reasons you won’t see this at the top of national lists:
- Arkansas has an interest rate cap with draconian penalties; and
- it is a crime in Arkansas for most non-lawyers to negotiate debt on behalf of an individual.
What does Arkansas's 17% interest cap actually say?
Amendment 89 caps interest on loans and contracts at 17% per annum. It is not limited to consumer loans and has only two exceptions. Proposed as House Joint Resolution 1004, it was approved by voters in November 2010 and took effect on January 1, 2011.
The exceptions are (1) bonds and loans of governmental units; and (2) loans by federally insured banks with their main office in Arkansas, which may charge what out-of-state banks can charge under federal law. The most important section is Section 6(b): contracts violating the cap are “void as to principal and interest.” Ark. Code 4-57-105 bars any person or corporation from taking more, “directly or indirectly,” for “the loan or forbearance of money.”
What if my MCA is for $50,000 with a factor rate of 1.35 and a six-month term? You will repay $67,500, or $17,500 in interest. That is 35% for six months or 70% per year, not taking into account the effect of daily debits.
Does the 17% cap help if your MCA contract picks New York law?
It may not help you at all. The cap will only apply if a court decides that Arkansas law governs and that your MCA is a loan. Most MCA contracts choose New York law and a New York forum, where a court will likely apply New York usury law. To our knowledge, no reported Arkansas decision determines whether MCAs are loans under Amendment 89; the factors courts consider are in our article on whether an MCA is actually an illegal disguised loan.
A New York judgment filed in Arkansas has, under Ark. Code 16-66-602, the same effect as an Arkansas judgment. Under the full faith and credit clause, you generally could not relitigate the merits, including Amendment 89, in Arkansas. The 17% argument is most effective before a judgment is obtained, whether a funder sues in Arkansas or the forum selection and choice of law provisions are challenged. So have the company you hire review your contract before it begins negotiating.
Can a business debt settlement company in Arkansas legally negotiate for you?
If you have personally guaranteed the MCA, the answer may be no, unless the company is a law firm. Engaging in the business of debt adjusting is a Class A misdemeanor under Ark. Code 5-63-302. Ark. Code 5-63-301 defines it to include acting “as an intermediary between a debtor and the debtor's creditors for the purpose of settling” a debt, and a “debtor” is an individual. An LLC may not be an individual, but you are one as guarantor, and any settlement will likely settle the guaranteed debt.
Attorneys are not subject to the statute under Ark. Code 5-63-305, but to our knowledge there are no reported decisions applying the ban to a business guarantee. Arkansas also has no debt adjuster license to check.
What should you ask a provider before hiring one in Arkansas?
- Will you look for an Amendment 89 defense (is the MCA a loan, can you attack the forum selection or choice of law clause) before calling the funder?
- Is your company a law firm?
- Can you respond quickly if an Arkansas judgment has already been filed?
- Can you draft settlement letters that don’t create a written acknowledgment of the debt, starting the five-year statute of limitations over again (Ark. Code 16-56-111)?
- Do you charge fees upfront? The federal ban on advance fees does not apply to business-to-business sales calls under 16 CFR 310.6(b)(7), so upfront fees for negotiating business debt settlements are not illegal. See our article on how much business debt settlement costs.
What can a funder take from an Arkansas guarantor?
This will depend on your household. The homestead provision in Article 9 of the Arkansas Constitution protects only persons who are married or the head of a family. They are entitled to an urban homestead of up to one acre, but not less than one-quarter acre, or a rural homestead of up to 160 acres, but not less than 80 acres, in both cases regardless of value. Single persons with no dependents get no homestead and may exempt only $200 of personal property plus clothing, versus $500 for married persons or heads of family.
Persons filing for bankruptcy in Arkansas can elect Arkansas or federal exemptions under Ark. Code 16-66-217. Arkansas exemptions include $1,200 for one vehicle and $750 for tools of the trade (Ark. Code 16-66-218). Collection suits against Little Rock owners will likely be filed in Pulaski County Circuit Court, and Arkansas has no dedicated statewide business court.
Frequently asked questions about Arkansas business debt settlement
Are banks in Arkansas subject to the 17% usury cap?
Banks can charge more than non-bank funders. Federally insured banks with their main office in Arkansas can charge what an out-of-state bank could charge under federal law, and Amendment 89 cannot override federal law letting out-of-state banks export their rates. Non-bank MCA funders are not entitled to either exception.
What happens when a New York judgment is filed in Pulaski County?
The funder files the judgment with an affidavit giving your last known address, and the clerk mails you notice. The judgment has the same effect as if it had been entered by an Arkansas court, and no execution can issue until ten days after the filing. By then, defenses to the underlying transaction, including usury, generally come too late.
How long does a funder have to sue on a written contract in Arkansas?
Five years, if Arkansas law applies (Ark. Code 16-56-111). The statute of limitations can start running again if you make a payment on the debt or acknowledge the debt in writing.
If the MCA is deemed to be a loan and it exceeds 17%, is the contract void?
Section 6(b) of Amendment 89 provides that a contract exceeding the usury cap is void as to both principal and interest, but only if (1) the MCA is deemed to be a loan and (2) Arkansas law applies. With a New York forum selection clause, an Arkansas court may never hear the case.