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[From the Arkansas Gazette, Saturday, June 29, 1974.]

208,457 SIGNERS BACK INCREASE IN INTEREST RATE

(By Carol Griffee, of the Gazette staff) Petitions bearing 208,457 signatures of persons asking for a vote in the November general election on whether the General Assembly should receive the power to change Arkansas's 10 per cent interest limit were submitted Friday to Secretary of State Kelly Bryant.

Bryant and William J. Smith of Little Rock, attorney for the Arkansas Credit Requirements Committee, said it was the largest number of signatures ever submitted asking for a vote on an issue.

The previous record number, also submitted by Smith, was about 200,000 in 1972, on petition, seeking a vote to repeal the 1907 state law requiring full crews on railroads.

Bryant said it would take his staff about 10 days of the 15 days allowed by law to verify that at least 64,807 of the signatures were those of qualified voters, the minimum required before he can place the amendment on the ballot. To initiate a constitutional amendment requires the signatures of 10 per cent of the 648,069 voters who participated in the 1972 gubernatorial election. In addition, Amendment 7 to the Constitution requires that the petitions must contain the signatures of at least 5 percent of the qualified voters in 15 of the 75 counties.

The petitions were brought into Bryant's office in five cartons, four of which were transported on a dolly.

Smith's principal argument for the amendment was that "we have a democratic form of government. For 100 years, the legislature and the governor have been able to deal with every subject except one-the cost of money.” The governor's power to veto bills and the people's right to a referendum on any law passd when 6 per cent of the voters demand it are adequate safeguards, he said.

The 10 per cent ceiling on interest rates would not be repealed automatically if the amendment were approved because it would take affirmative action by the General Assembly to change it, Smith stressed. He and Wilson said they hoped the Legislative Council would begin an immediate study of the problem if the amendment were approved, concentrating on what neighboring states have done. Many have sliding scales of interest on different types of loans, he said.

Arkansas, Smith continued, is the only state that has a constitutional limit on interest rates. The national prime interest rate (the rate banks charge their best customers) is 1134 per cent. This means that capital that should remain in Arkansas to furnish loans is leaving because it can draw more interest elsewhere, Smith said.

To meet existing contractual obligations, some Arkansas banks are having to "buy” money at 12 per cent which they can then loan only at 10 per cent, Wilson and Smith said. This is why Arkansas banks will not take on any new financing contracts, esnecially on interim construction, they said.

Arkansas Consumer Research noted the Committee's contention than the 10 per cent limit “is responsible for tight credit conditions in Arkansas” and called this a “false argument that should be rejected outright."

Credit conditions are tight in Arkansas “because they are tight nationally," ACR said. “The backers have not offered one iota of proof to indicate that the Arkansas limit is preventing people from getting credit.” Money also is tight “because of a national inflation rate of more than 10 per cent," ACR said. "Changing the Arkansas Constitution is not going to prevent inflation. In fact, higher interest rates add to inflation."

When asked by reporters for verification that the interest ceiling hurts low income persons, Smith introduced Burl C. Rotenberry of Fort Smith, a lawyer now in private practice who was director of the Legal Aid Bureau in Pulaski County from 1965 to 1968. Rotenberry said usury laws “do more harm than good” because the "people who need credit the most and who most need to deal with legitimate and reputable" lenders are driven to illegitimate and disreputable sources because they often are looked on as being "high risk” consumers.

Smith said that various surveys were being conducted to determine how much capital Arkansas had lost because of the ceiling and how many consumers had not been able to obtain loans. Pressed to name who was conducting the surveys, Smith said the Federal Deposit Insurance Corporation was one and that the Arkansas Bar Association was financing a research project.

He also said that the federal Consumer Credit Commission filed a report last ỹear in which it recommended that states be given four years in which to lift interest rate limits. If the states did not act, the Commission said, the federal government should step in.

ACR's statement said the organization was “not surprised” at the record num: ber of signatures submitted because the Committee had enlisted "everyone from college fraternity members to high school band students to people hired through the want ads in newspapers” to gather them.

[From the Arkansas Gazette, Little Rock, July 12, 1974.]

VOTE ON INTEREST RATE SET NOVEMBER 5

(By Carol Griffee, of the Gazette staff) Arkansans will vote in November on whether they want to give the General Assembly the power to change the constitutional limit of 10 per cent on interest rates.

Secretary of State Kelly Bryant said Thursday that his staff had verified 78,783 names of qualified voters on 5,000 petitions submitted June 28 by the Arkansas Credit Requirements Committee. Only 64,807 names were needed to get the amendment on the November 5 general election ballot. The question's official title is Proposed Constitutional Amendment No. 57.

At a news conference after the certification, Kenneth Pat Wilson of Jacksonville, the Committee chairman, said in response to questions that Governor Bumpers had not dropped his opposition to the proposed amendment.

Asked if the governor would speak out against its passage, Wilson said, “I don't think anyone in his right mind would talk against it ***. Anyone who is smart enough to sit in the governor's chair is smart enough to know" that the interest rate ceiling is hurting Arkansas's economy. With the national prime interest rate at percent and

ork fina al institutions paying 12.25 per cent on large certificates of deposit, capital is being drained from Arkansas because it can earn more elsewhere, Wilson and William J. Smith of Little Rock, the Committee's legal counsel, asserted. They said published statements of bank conditions show some Arkansas institutions are experiencing a slowing of the growth of their deposits.

Mr. Bumpers responded later that he would re-evaluate his opposition “if somebody can prove to me there is a flight of capital from this state and bank deposits in this state are, in fact, decreasing or flying to other states and that banking in this state is jeopardized by this.

"It is very difficult to ask me or anybody else to raise interest rates on what I know are going to be the people who have the toughest time making ends meet. They're the ones that will be hit with the highest rates if this amendment passes. That one thing deeply concerns me.” He added that a study of the state Commerce Department showed that bank deposits in Arkansas were increasing at a rate similar to those of surrounding states.

SENATOR'S BILL ALSO CRITICIZED

Wilson and Smith also frowned Thursday on a bill proposed by United States Senator William Brock III (Rep., Tenn.) that would allow financial institutions to charge more interest on commercial loans and loans of $100,000 or more, regardless of a state's constitutional or statutory limitations.

Wilson, a Jacksonville banker, said Brock's bill would “selectively accommodate certain groups" rather than benefit the public. Smith said the bill, if passed, would “fragment Arkansas's economy" by allowing only certain loans to qualify for an interest rate of up to 5 per cent more than the federal discount rate, which currently is 8 per cent.

Wilson was asked that if a bank could earn more on commercial loans would this not dry up funds for other types of loans that could not draw equal interest. “You draw your own conclusions,” he said, indicating that this would be true.

Smith noted that Tennessee's constitution had a 10 per cent interest ceiling on certain types of loans, whereas Arkansas's was an across-the-board limit, annlying even to department store charge accounts. “Tennessee has a curable case; we've got a terminal case,” he quipped.

38-252 O - 74 - 1:

Pressed by reporters to cite specific instance where banks had lost deposits to out-of-state institutions, Smith repeatedly referred them to statements of conditions published quarterly in newspapers, which he said would show a decline in the rate of growth of deposits during the last six months. He conceded that there had been no actual reduction in the total amount of deposits.

(The state's largest bank is Worthen Bank and Trust Company. Its deposits from December 31, 1972, to December 31, 1973, grew by $24,869,072. From June 30, 1973, to June 30, 1974, it registered a $28,586,743 increase in deposits).

HALT IN INVESTMENTS BY STATE CITED

In mid-May, the state stopped investing its surplus funds in certificates of deposit because an attorney general's opinion said they were securities and state law limited the amount of state investments in securities. The state was over that limit. Smith was asked if this could have caused the alleged growth slowdown and he said it "could have contributed to it."

Smith cited two instances that he said showed the money market was growing more critical in Arkansas. Commercial Credit Corporation, one of the nation's largest, has notified its borrowers that it is pulling out of Arkansas, he recalled.

He said also that St. Francis County Community College at Forrest City was unable to attract any bidders on 6 per cent tax-exempt construction bonds and was having to apply to the state Board of Higher Education for permission to offer bonds at a higher interest rate.

The Committee submitted 11,715 petitions containing more than 208,000 signatures to Bryant. The secretary of State said his staff stopped counting when it was satisfied that the petitions contained more valid names than were needed.

In addition to requiring that at least 10 per cent of those who voted in the 1972 gubernatorial election sign constitutional amendment petitions, the state Constitution says he signatures must include 5 per cent of the qualified voters in a minimum of 15 counties. Bryant said the Committee's petitions contained at least 5 per cent of the voters in 64 of Arkansas's 75 counties.

(From the Arkansas Democrat, Thursday, July 11, 1974.]

PETITIONS VALID; USURY MEASURE GETS BALLOT SPOT

Secretary of State Kelly Bryant certified as sufficient today petitions from an organization that wants to change the state's constitutionally set 10 per cent interest limit.

Bryant said the question of changing the law to allow the legislature to set maximum interest rates would be designated Amendment 57 on the Nov. 5 general election ballot.

Bryant said the Arkansas Credit Requirements Committee, the group pushing for the change in the usury law, had submitted 11,715 pages of petitions. He said 5,099 petitions were checked and some 78,783 names were found to be acceptable.

Bryant said that was 21.44 per cent more than the required amount of names.

The committee needed 10 per cent of the total number of votes cast for governor in the last general election. The committee also had to have signatures of 5 per cent of the total number of votes cast for governor in the last election in 15 counties.

Bryant said the committee had enough signatures to meet both requ nts.

Kenneth Pat Wilson of Jacksonville, committee chairman, predicted the usury change would be approved. "I feel the people will want Arkansas to join America,” he said.

Asked if Gov. Dale Bumpers, who has expressed opposition to the change in its present form, would continue his opposition, Wilson said, "I don't think anybody in his right mind will talk against it."

Attorney William J. Smith of Little Rock, the committee's legal counsel, said Arkansans cannot compete on the national or regional money market because of the limit. He said badly needed capital is leaving the state daily.

[graphic]

Wilson said the national prime interest rate continues to climb and that Arkapsas banks now are competing for federal money at 13.1 per cent interest. He said that two weeks ago, Arbansas banks were competing for funds at 11.7 per cent interest.

On another subject, Bryant told reporters today that he had sent letters to Atty. Gen. Jim Guy Tucker from two persons who want to be write-in candidates in the general election.

Editor Joseph Weston of Cave City wants to run for governor and Jim E. Lendall of Little Rock wants to run for House District 1, Position 3.

Bryant turned down a request from both, saying they had not qualified under state law. He asked Tucker for his opinion.

FEDERAL RESERVE BANK OF ST. LOUIS,

LITTLE ROCK BRANCH,

Little Rock, Ark., October 2, 1973. Mr. EDWARD M. PENICK, President and Chief Executive Officer, Worthe Bank an Trust Co., N. A., Little Rock, Ark.

DEAR ED: The request for credit submitted in your letter of September 14 has been reviewed by our Discount Committee.

The Committee is sympathetic to the credit needs of your bank, and is mindful of the fact that you are not able to serve your community in a manner you deem adequate. However, in view of the increase in both loans and deposits over 1972 levels, the Committee feels that your bank does not now qualify for emergency credit as defined under Section 201.2(e) of Regulation A. The problem created by the restrictive usury laws in Arkansas is not, in the Committee's opinion, unique to Worthen Bank, but arises from a state constitutional provision that affects the entire Arkansas banking community, and is particularly troublesome for the more progressive banks.

The Committee noted that your bank does have access to the national money markets, and that you have been able to cope with the situation thus far. The Committee also noted that your bank still has adjustment credit available under our guidelines. While no one knows when interest rates will turn down, there is at least the hope of some relief in the not too distant future. In the meantime, the Committee expressed its desire to keep abreast of your situation, and to evaluate any new information that might have a bearing on your eligibility for emergency credit. Sincerely,

JOHN F. BREEN.

WORTHEN BANK & TRUST COMPANY, N. A.,

Little Rock, Ark., September 14, 1973. Mr. JOHN BREEN, Vice President, Federal Reserve Bank of St. Louis, Little Rock Branch Little Rock, Ark.

DEAR JOHN: An emergency now confronts Worthen Bank due to a severe unavailability of funds necessary to meet minimum legitimate loan and commercial bank servicing requirements of the community served by Worthen Bank. The principal cause of this emergency is the unduly restrictive 10% Arkansas usury law.

Under the provisions of Section 201.2(e), Regulation A, Extension of Credit by the Federal Reserve Bank (April 19, 1973), Worthen Bank & Trust Company, N. A., of Little Rock, Arkansas, requests extension of emergency credit. The bank requests additionally that, if considered favorably, the disbursement of funds take place at the earliest feasible time and that the credit be made available for a period of time sufficient to allow a significant easing of the conditions which have brought about the current emergency.

The management of Worthen Bank believes that the Bank has taken timely and prudent steps both to increase the deposits available to the bank and to reduce loan commitments. On March 6, 1973, a Funds Allocation Committee was formed. Since that time the committee has declined loans of $26,631,000 based solely on the unavailability of funds and without regard to the merit of the loan. Other credit tightening measures initiated by the bank have kept undeterminable additional millions of dollars in loan requests from ever reaching the bank's funds allocation and discount committees. Commercial lines of credit, which on March 15, 1973, stood at $112,340,000, have been reduced by 15.2% to $95,290,000 as of August 15, 1973. Similarly, utilization of these commitments during the same period has been reduced by 10.5% from $38,810,000 to $34,734,000. Since early 1973 Worthen Bank has as a rule not made speculative loans, overline loans, or loans to non-customers or existing customers with marginal banking relationships. Borrowers with alternative sources of funds have been requested and in many cases compelled to seek other credit sources or rest their lines with Worthen Bank.

On the deposit gathering side, Worthen Bank is paying the highest interest rates allowed by law for savings instruments of under four years maturity and is paying as high a rate of interest in the over four year category as any other major Arkansas bank. However, bank deposits of several types that would normally flow to Worthen have been diverted to out-of-state financial institutions due to our inability to competitively bid for these funds as caused by Arkansas's unusually restrictive usury law.

An addendum is attached that quantitatively summarizes the funds shortages traceable to the adverse effects of the usury law in Arkansas.

The factors which created the present emergency are still at work and the deficiency of funds needed to meet minimum basic requirements of the community may even increase before normal money conditions return.

In light of the current situation, Worthen Bank cannot continue to meet its community responsibilities without emergency assistance in the amount of a requested $20,000,000 credit extension. Failing this assistance, the bank will have no alternative but to make banking decisions based on an abnormal and largely artificial generated deficiency in funds which will result in severe harm to the community it is chartered to serve. Sincerely,

EDWARD M. PENICK, President and Chief Executive Officer.

Addendum Funds shortages at Worthen Bank as of Sept. 12, 1973 believed to be traceable to the effects of Arkansas' 10 percent usury limit: Estimated loss of demand deposits of individuals, partnerships,

and corporations which have left Worthen for banks in other

States able to pay over 10 percent for large time deposits---- $5,000,000 Estimated loss of time deposits for the above reason, which would also otherwise be in Worthen--

7, 000, 000 Estimated loss of time deposits from public agencies that have

been placed in noninstitutional investments at higher rates
than can be paid by Arkansas banks---

2,000,000 Loans brought to Worthen by large borrowers with access to

national markets at higher rates than our allowable 10 percent.
Despite our attempts to eliminate the practice, we estimate a
minimum figure of..

2,000,000 Loan participations which are unsaleable because of the 10 per

cent maximum rate. Worthen's gross commercial loans of $128,081.000 on Mar. 15, 1973 were reduced to $120,682,000 as of Sept. 12, 1973, as a result of strong restrictive credit measures. This effort was offset, however, by a 24.3 percent (or $8.000,131) reduction in participations sold to other banks. We estimate that at least one-half of that reduction in participations sold was attributable to the difficulties of selling loans with maximum yields of 10 perrent. In addition, we are vulnerable to the further eventual loss of a major portion of the $24,867,160 participations currently sold---

4,000,000 Total

20,000,000

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