Payday Loan Times

A lobbyist for the South Dakota payday loan industry says the industry is well-regulated and there’s no need for the state Legislature to do anymore right now after tweaking the laws several times in recent years.

Short-term credit exists to help people who can’t get loans elsewhere, and too much regulation could stifle competition and push interest rates higher, said Rex Hagg, a Rapid City lawyer representing the South Dakota Short Term Lending Association.

“I guess all we’re asking is, we have this in place, let’s see if it works,” Hagg said. “I think we’ve come an awful long way, and I think it’s working pretty well right now.”

Hagg’s comments came during a meeting of an interim legislative committee assigned to review the regulatory agencies under the state Department of Revenue and Regulation. One of those agencies is the state Banking Division, which regulates moneylenders, including the faxless payday advance lenders.

“The more you regulate, those costs get tacked on,” said Hagg, a former state legislator. “Some regulation is needed, and it’s good. But we’re there.”

Payday lenders generally offer loans of two weeks to 30 days.

Cathy Brandner, deputy director of the Banking Division, said the current law, changed last year, limits such transactions to $500 from one lender at any one time. The borrower generally writes a check, dated when the bad credit payday loan is due, to repay the note. The loan can be renewed up to four times, but each time, the borrower must repay at least 10 percent of the original loan.

Before the change, the law simply had a $500 limit, Brandner told the committee.

The contract also must list the annual percentage rate, or APR, even though many of the payday loans or title loans are for two weeks to a month, she said.

Payday loans should be part of a state government review, a Deadwood lawmaker says.

Republican Rep. Chuck Turbiville made that recommendation Tuesday as an interim committee began a review of the state Department of Revenue and Regulation.

“There’s been a lot in the news about the [online payday loan] rates being charged,” Turbiville said. “Could we get some indication what might be done to regulate, cap, reduce those rates without driving away those credit card companies that came to South Dakota mainly because we do not have any regulation of that?”

Payday loan is a generic term for a relatively short-length, high-interest personal loan. Loans generally run about 30 days, and interest rates can be in triple digits. Lawmakers have made several attempts to regulate the industry in recent years, but a Wall lawmaker said the review process is a chance to see whether more needs to be done.

“A lot of work has been done on that, but the question is, ‘Have we gone far enough?’ ” Republican Rep. Gordon Pederson said.

Paul Kinsman, secretary of the Department of Revenue and Regulation, said his agency would welcome legislative input on that and other issues related to pay day loans.

“The department would be very interested in working with this group to come up with some kind of solution or at least a plan of action with how we’re supported to deal with [fast cash loans],” Kinsman said.

The legislative committee’s review is part of an ongoing attempt to study the workings of each major agency of the executive branch.

Short-term lenders of South Dakota payday loans will be reined in beginning tomorrow by a new state law forbidding them from making multiple loans to customers.

South Dakota is one of several states that have passed laws dealing with so-called faxless payday advance lenders firms that offer quick-cash loans and charge high interest rates.

Representative Joni Cutler of Sioux Falls was the prime sponsor of a measure in the 2007 Legislature that clarifies a regulation on payday lenders.

A state audit found that some of the businesses were making multiple loans of 500 dollars to individuals.

Cutler’s legislation makes it clear that each customer can have only one cash advance payday loan of 500 dollars from a single business.

South Dakota Sen. Tim Johnson’s re-election campaign has raked in almost $20,000 so far this year from people who earn their living making high-interest loans to cash-strapped borrowers, Federal Election Commission records show.

Individuals employed by nine fast payday advance lending companies from across the country donated a total of $19,500 to Johnson’s campaign committee in the first three months of the year, campaign finance records show. That’s on top of the $37,600 that they and others in the industry donated to the Democratic senator last year.

The industry donated $500 to South Dakota’s lone House member, Democrat Stephanie Herseth, last year and no money during the past two years to Republican Sen. John Thune.

Johnson, who is recuperating from a December brain hemorrhage, is a member of the Senate banking committee, which has jurisdiction over no fax cash loan lenders. He is expected to seek a third term next year. In all, his campaign raised $633,208 in the first quarter of 2007.

Consumer groups say the donations are troubling because payday lenders trap low-income borrowers in a cycle of debt, a practice the groups want Congress to stop. Some of the lenders formed business relationships with small South Dakota banks to avoid state usury laws. South Dakota does not cap interest rates. Federal regulators put a stop to the practice last year.

Last year, Johnson criticized a proposal to impose a 36 percent cap on interest rates that guaranteed payday loan lenders charge members of the military. The Defense Department asked for the cap because thousands of military personnel had lost their security clearances because they were so heavily in debt to payday lenders. The proposal was incorporated into the 2007 defense authorization bill and became law.

“If we are to eliminate payday lending altogether or make it unusable, the question is, ‘Who fills the void?’ ” Johnson, whose son, Brooks, was in the Army at the time, asked during a hearing. “We need to make sure we don’t have unintended consequences that are worse than what we have now.”

Cash advance lenders, who often charge 390 percent to 780 percent annual interest, are legalized loan sharks, said Ed Mierzwinsky, consumer advocate for U.S. Public Interest Research Group.

“They are preying on American consumers,” Mierzwinsky said. “Congress cracked down on them when it came to the military, and now the industry is gearing up to make sure Congress doesn’t take the next logical step of protecting everyone.”

(Read on …)

The plethora of instant cash loan businesses that have seemingly popped up all over the place in South Dakota may be facing a new restriction.

The state Senate is scheduled to consider a measure today that would limit those lenders to one personal loan at a time of 500 dollars per person.

State legislators thought that was the law when they passed regulations earlier, but an audit found that some of the businesses were making several loans of 500 dollars to individuals.

The businesses argued that they thought the law said 500 dollars for each loan, no matter how many payday advance loans were provided.

The pending legislation would make it clear that each customer can have only one loan of 500 dollars from a single business.

Opponents say that’ll drive those people down the street to get a faxless cash advance from each small lender. The debate will likely continue for awhile.

How does The State feel about South Carolina’s payday advance law? Let’s paraphrase a recent editorial from the paper below and find out …

“Rewrite!”

To journalists, that term means it’s time to make changes - sometimes drastic ones - on a finished piece.

But when visitors to the paper’ office last week kept using the word to describe their dealings with multiple payday cash advance lenders, it meant something altogether different.

In the payday lending world, “rewrite” essentially means to renew a loan over and over again. According to these visitors, who didn’t want their names used - let’s call them Diane and Donna - it works like this:

• If they take out a $300 loan, they would give the lender a $345 check, which includes a $45 fee, to hold. When they return to pay the no credit check payday loan off, they present the cash, their existing loan would be closed, a new one is immediately opened, and they leave with another $300.

“Rewrite!”

That’s a big reason payday lenders are raking in fees of $186 million a year in South Carolina and $4.2 billion a year nationwide. They lure people in by offering short-term cash advance loans, only to take advantage of the fact that people can’t repay them.

Borrowers find themselves in a cycle of debt they can’t escape.

A study released in 2004 by the Center for Responsible Lending, in Durham, N.C., found repeat borrowers account for 91 percent of payday lenders’ revenue. The study found those who borrow from payday lenders receive, on average, eight to 13 loans a year from a single source.

Diane and Donna, both on fixed incomes, said they routinely get rewrites. Most times, they use money from one rewrite to - you guessed it - pay off yet another cash advance payday loan.

(Read on …)

Bills regulating the roughly 300 payday loan stores in South Dakota were introduced in the South Dakota State Legislature as its 2006 session convened.

The state's lack of an interest rate limit, which was aimed at luring banking companies, has fueled the rise of these quick loan companies, according to the Aberdeen News. Loans from the various cash advance establishments in the state typically last up to 30 days and carry annual interest rates of 400 percent or more.

One proposed bill would amend the current South Dakota short-term lending law to add the definition of a consumer small loan — a short-term, non-revolving loan of less than $500 that is to be paid in a single installment.

Mary Glenski, a Sioux Falls Democrat who sponsors the bill, said it would regulate the increasingly popular short-term loans without alienating the credit card industry. The bill would eliminate a section that allows borrowers to roll over — or extend – a faxless payday loan up to four times.

While the lawmakers' approaches differ, anti-payday legislation is drawing bipartisan support. Joni Cutler, a Republican from Sioux Falls, is proposing her own bill that defines short-term consumer loans as anything that applies to an individual and lasts six months or less. Cutler's bill would require lenders to disclose any fees or charges, including the cost of a loan as an annual percentage rate (APR).

"I'm sure whatever does happen or gets passed will be reasonable. I can't comment on any of the specifics because I haven't had a chance to go through them," said Bruce Cooey, who manages Dollar Loan Center stores in South Dakota, Utah and Nevada.

South Dakota payday advance companies say that the loans are meant to be repaid quickly, almost like an overdraft account. But lawmakers said they fear the ability to extend the loan four times is what leads to an endless downward spiral of debt — a weekly $10 fee on a $100 loan, by the end of one year, adds up to more than $520 in late surcharges alone.

"It's not a partisan issue," said Bill Napoli, a Republican from Rapid City that is co-sponsoring both bills. "It's a people issue."

Louisville, Kentucky — Advance America, of Spartanburg, S.C., announced last week that it had terminated its marketing and servicing agreement with Louisville’s Republic Bank & Trust Co. and struck a new pact with First Fidelity Bank, of South Dakota.

Republic had a three-year relationship with Advance America, which has six outlets in Louisville and Southern Indiana. Republic doesn’t plan on leaving the payday loan industry, but rather will offer a web product. If successful, Steve Trager, Republic’s chief executive, says the payday advance program will be expanded nationwide.