What started as a game plan to attract investment in South Dakota by annulling interest rate caps, may soon take a U-turn with opponents laying groundwork for a ballot fight in November 2016.
Over three decades ago, South Dakota revoked its interest rate caps to attract Citi Group’s credit card operations. It was a move that brought more than 17,000 jobs to the state and set new news standards of high cost loans in the rest of the country, according to the American Banker.
State Representative Steve Hickey and Steve Hildebrand, a Sioux Falls based political operative have joined hands to impose a 36 percent annual rate cap on the payday business.
When South Dakotans put the issue on the ballot, credit card issuing banks would most likely stay unaffected by the 36 percent rate cap as Hickey assured that the purpose of the ballot is not to “buck the credit card industry.” However, certain subprime lenders might take a hit.
Despite being exempt from the cap rate, bankers in South Dakota are planning on opposing the initiative. “We have concerns about the government getting in the business of setting the price of borrowing money, no matter what the product is,” said Curt Everson, president of the South Dakota Bankers Association. “We just believe the marketplace is the place to set those prices.”
Everson expressed concerns over the ballot paving the way for the government to further regulate banks in future.
Short-term lenders like the Dollar Loan Center, which has 11 stores in South Dakota, have their own set of concerns with the proposed regulation. Charles Brenna, the owner of Dollar Loan Center told the American Banker that a ban on payday lending would lead to theft and an increased number of bad checks. However, Hickey believes that it’s high time when the payday industry should stop being predator bilking money out of poor neighborhoods.
Today, South Dakota is one of the only seven states without lending rate caps. The lack of regulation has South Dakotans paying an average of $660 for a principal amount of $300 borrowed for five months.