The Department of Labor and Revenue does us the favor of posting the official statement from the Division of Banking on its Cease and Desist and License Revocation Order issued yesterday against Dollar Loan Center.
In trying to get back into payday lending in South Dakota, Dollar Loan Center boss Chuck Brennan appears to have made two main errors. First, according to the Division of Banking Order, all of Dollar Loan Center’s applications for money lender licenses “indicated that it would not provide ‘short term consumer loans’ as defined in SDCL 54-4-36(16).” When Brennan launched his new loans in July, he called them “signature loans.” However, the Division of Banking found, “all of the new loans mature in 7 days and require full payment of principal and interest upon maturity.” State law says “short-term consumer loans” are any loans with a duration of six months or less. Dollar Loan Center was thus selling loans it has said on its applications that it would not sell.
Brennan’s second error—or, more specifically, the way the Division of Banking analyzes and explains it—is violating the 36% rate cap by charging big late fees. The Division of Banking calculated that Dollar Loan Center’s late fees created an effective APR ranging from 300.86% to 487.64%. Brennan thought (and I did, too!) that the exemption of late fees from interest calculations snuck into SDCL 55-4-44.3 by this year’s Legislature meant he could charge all the late fees he wanted after one week. But the Division of Banking concludes that the “late fees” weren’t really late fees incurred upon consumer default but “anticipated” charges that Dollar Loan Center viewed as an essential part of its predatory financial product:
The Division of Banking thus includes those anticipated late fees in calculating the finance charges on the short-term loans that Dollar Loan Center said it wouldn’t be offering in the first place and concludes that Dollar Loan Center is violating SDCL 54-4-44.1 by offering a product that is really a “device, subterfuge, or pretense to evade” the 36% rate cap.
As a result of these violations, every loan Dollar Loan Center issued in South Dakota after June 21, 2017, is void and uncollectible. Dollar Loan Center loses its license and any any principal, fee, interest, or charge issued to any customer since June 21.
South Dakotans voted overwhelmingly last year to cap interest rates at 36%. Fortunately, the Division of Banking is enforcing the will of the people and telling Chuck Brennan that, yes, the people really meant 36%.
Related: The Division of Banking issued a new order today telling Cash N Go Pawn in Rapid City and Sioux Falls to shut down unlicensed lending activity.