Amidst the Legislature’s zeal for repealing Initiated Measure 22 (and rubbing that repeal in voters’ faces), I’ve been keeping an eye out for signs they might try going after other measures approved by voters last November, particularly Initiated Measure 21, the 36% rate cap on payday lending that has shut down Chuck Brennan’s usury outposts in South Dakota.
One carcass bill that had set off my 36% alarm is House Bill 1175, introduced by Representative Tim Rounds (R-24/Pierre) to “revise the method of establishing certain interest rates.” The original placeholder text gave no other information; however, an amendment passed Monday signals that Rep. Rounds is changing interest rates for damages in court cases, not consumer rates.
Right now, individuals winning damages in court in contract disputes get “prejudgment interest,” calculated on rates specified in the contract or, absent such contractual provision, the state’s Category B rate of 10%. HB 1175 as amended would change the interest when not specified by contract to the prime rate plus 3%.
Today’s bank prime loan rate from the Fed is 3.75%, so in the current monetary climate, HB 1175 represents a ding on damages. On $100,000 in damages incurred five years ago, 10% earns $24,700 more than 6.75% interest.
Rep. Rounds should explain why he wants to lower damages on contract lawsuits today in House Commerce and Energy at 10 a.m. He’ll also get to explain his House Bill 1090, which does directly tinker with the 36% rate cap by removing “installment sales contracts” from the definition of “loan,” creating the possibility that a creative payday lender could redefine his products to evade the cap. Keep an eye on who shows up to testify on that bill this morning.