SD lawmaker wants to tighten payday loan rules
By Chet Brokaw
PIERRE — After negotiating with representatives of the payday lending industry, Rep. Steve Hickey has come up with a proposal he hopes the South Dakota Legislature will pass to put restrictions on the short-term loans he says can trap poor people in crippling cycles of debt.
The Sioux Falls Republican said industry representatives were alarmed last year by his effort that would have placed a proposed law on the statewide ballot to cap interest rates for such loans. He said he agreed to stop the ballot effort if they would cooperate to write reasonable regulations.
The compromise resulted in a bill that instead of limiting interest rates for short-term loans would impose additional state regulations and limit the size of loans based on a borrowers’ ability to repay. The House Commerce and Energy Committee will hold a hearing on the measure Wednesday.
“You would think any reasonable, responsible lender would ensure a person borrowing the money can indeed pay them back. Stunningly, this industry doesn’t operate like that,” Hickey said. “They get people in, give them money and keep flipping the loans many times over. It’s extremely profitable for them. It’s a debt trap.”
Current law puts a limit of $500 on a short-term loan or the total balances of all loans made by a lender to a customer. Hickey’s bill would change that to $700, but the loan could not exceed 25 percent of the borrower’s gross monthly income.
The measure also would limit loan renewals or rollovers, give borrowers a chance to cancel loans within a day of making a deal, allow extended payment plans with no additional finance charge and require lenders to provide information on loans to the state Banking Commission.
One of the lenders Hickey worked with to develop the proposal is Advance America, a South Carolina-based company that has offices in South Dakota and 28 other states.
Jamie Fulmer, the company’s senior vice president of public affairs, said Advance America likes some parts of the bill but has reservations about other provisions. The company’s support for the bill depends on how it might be changed during the legislative process, he said.
Fulmer said state and federal regulations must strike a balance between making sure people can get the loans they need and protecting them from making bad credit choices.
Responsible short-term lenders don’t make loans to people who cannot repay them, Fulmer said. A typical borrower needs money to pay a utility bill, cover car repairs or take care of other unexpected expenses, he said. Such loans are usually repaid when borrowers get their next paychecks.
It’s cheaper for a person to pay a $19 charge on a $100 loan than to pay a $35 overdraft fee for writing a check, Fulmer said.
“While there are those who feel this is an issue that needs immediate attention, the fact of the matter is consumers who use these products and services in South Dakota and elsewhere are overwhelmingly satisfied,” Fulmer said.
Only about 200 complaints were filed against Advance America nationwide last year, Fulmer said, and the company made 10 million loans.
Hickey said there are good and bad companies in the short-term lending industry. He said the state needs to know more about the lenders, the terms of their loans and whether people are able to repay those loans.
Hickey said if short-term lenders don’t support the bill and the Legislature rejects it, he can always resume the effort to put a proposed rate cap on the ballot for a statewide vote.