Regulations on payday lending will be on the ballot in South Dakota next week, providing an opportunity for critics of the industry to advance their agenda even as the federal government readies new nationwide rules.
South Dakota voters will be asked if they want to cap interest rates on short-term loans at 36 percent, a rule that advocates believe would eliminate payday loans that trap borrowers in a cycle of debt. Today, annual percentage rates on such loans in the state can go over 500 percent.
That provision would go beyond the regulations that the federal Consumer Financial Protection Bureau is set to impose. The bureau is not allowed to directly cap interest rates.
The industry, however, is fighting back in South Dakota with another ballot measure that would amend the state constitution to impose an 18 percent cap on short-term loans but would not apply to loans set in writing, meaning that all existing payday loans would be exempted.
Blocking that “deceptive” amendment and instituting a 36 percent rate cap would be a step toward telling payday lenders across the country that super-high APR loans are “unacceptable,” said Whitney Barkley-Denney, a policy counsel for the Center for Responsible Lending, an advocacy group critical of the payday industry.
“Payday lenders have really been losing across the country since 2004,” she said.
South Dakota is the only state with payday lending measures on the ballot this year, but 14 states and the District of Columbia have instituted rate-cap measures, Barkley-Denney said.
Some congressional Democrats have told the consumer bureau that its rules would not go far enough in terms of making it impossible for lenders to offer loans with annual percentage rates over 300 percent.
The industry, however, has resisted those rules and is spending to block the South Dakota ballot measure by pushing the constitutional amendment, which would supersede the rate-cap measure in case voters approve both.
Georgia-based Select Management Resources, an auto-title lender, has given more than $3 million to the committee for the constitutional amendment.
The committee did not respond to a request for comment. A local South Dakota news station reported that the chairwoman of the committee has not responded to dozens of inquiries, avoiding its reporter even when he went to her work and home.
In general, payday lenders have argued that over-regulating their industry would force desperate borrowers into worse alternatives, such as bouncing checks or loan sharks.
Steve Hildebrand, however, a co-chairman of the committee backing the measure to implement the 36 percent rate cap, accused the industry of trying to “trick voters” in South Dakota with the constitutional amendment.
Hildebrand, an Obama campaign official in 2008 who now runs a coffeehouse in Sioux Falls, said the state is “just dominated by the poverty industry,” including payday lenders. After seeing efforts to regulate payday loans falter in the legislature, he teamed up with a conservative evangelical pastor to press to place a measure directly on the ballot.
