Voters Consider Competing Payday Loan Regulations

Jan 6, 2016

South Dakota is one of few states that has no cap on the interest rate payday loan companies can charge.   Some loan companies require an APR of 500 percent or higher.

In November voters will consider two competing regulations on payday loan companies.  But only one proposal includes an actual cap on interest rates if the loan is in writing.   

The group South Dakotan’s for Fair Lending is proposing what they call an 18 percent cap on payday loan interest rates. Lisa Furlong with the group did not respond to multiple requests for a taped interview, but in an e-mail she claims that this effort is, “far more stringent than that of other measures being proposed.”  

But for opponents there is a glaring loophole in the 18 percent cap proposal that they say intends to trick voters.  The first sentence of the proposed amendment reads, “No lender may charge interest for the loan or use of money in excess of eighteen per cent per annum unless the borrower agrees to another rate in writing.”

“That is a red flag and that allows the loop hole if we do pass the 18 percent to allow them to charge more than 18 percent,” says Terry Mills with Consumer Credit Counseling of the Black Hills.

 Mills' organization works to increase financial literacy and help consumers overcome money problems.  He is critical of payday lenders.

“They target poor people, people with bad credit, no credit, not a lot of options and things like that.  So anything that can help those people save more of their own money when they have to use these places they’d be much better off,” says Mills.

The Attorney general’s own explanation of this proposed 18 percent cap on interest rates points out that as a constitutional amendment it would eliminate other efforts.  That includes the 36 percent cap voters also consider in November.   The 36 percent statutory cap on interest rates is backed by the group South Dakotans for Responsible Lending. Erik Nelson with the AARP of South Dakota calls the 36% cap the true effort to stop predatory lending.

“It will drive the industry out of South Dakota it will make our friends and neighbored more safe from this toxic industry and it will make our state better overall,” says Nelson.

Voters decide on the two proposals in November.