The pending drive to cap interest rates in South Dakota and rein in predatory payday lenders gets some national press this week with a hefty article in The Atlantic. Sean McElwee’s article opens with the usual hook—the odd couple of conservative pastor and state legislator Steve Hickey and openly gay Obama campaigner turned restaurateur Steve Hildebrand—then turns to the nitty gritty of usury in South Dakota:
South Dakota has one of the most aggressive payday lending industries in the country. Lenders there charge an average annual rate of interest of 574 percent. In practical terms, if residents of South Dakota borrow $300 to make ends meet, five months later they will owe $660. South Dakota is one of seven states, along with Nevada, Utah, Idaho, Delaware, Texas, and Wisconsin, that do not cap payday-lending rates [Sean McElwee, “The Odd Couple Fighting Against Predatory Payday Lending,” The Atlantic, 2015.03.19].
Governor Bill Janklow made us the usury capital in 1980 when he pushed to eliminate that rate cap and recruit Citibank to Sioux Falls. Augustana economics professor Reynold Nesiba captures the predatory results in one vivid metaphor for our out-state readers:
The result, as Nesiba points out, is a nominally free market in loans that offers few protections for borrowers: “One does not need to be a South Dakota fisherman to understand that freedom for the northern pike in the Missouri River is not freedom for the minnow” [McElwee, 2015.03.19].
Rep. Rev. Hickey explains why he wants to correct this market error:
Hickey, who has helped members of his congregation trapped in the cycle of payday-lending debt, grew frustrated watching people get rich off of exploitation. “I’ve given away thousands of dollars to pay the lenders off,” he said. One payday-loan mogul, Chuck Brennan recently purchased a $9 million second house in Newport Beach. “Good for him,” Hickey said. “I don’t mind people making money, but I feel like I partially funded that by paying the people who owe him.” He also noted that payday lenders often exploit those who are relying on government assistance, leaving taxpayers to foot the bill. “It’s an intentionally defective financial product that is deceptively marketed to the unsophisticated who are barely holding on at the margins of our society,” he said [McElwee, 2015.03.19].
Watch for Steve Hickey and Steve Hildebrand to come to your door with petitions to sign. When they do, help the minnows, spike the pike, and back that rate cap!
I very much look forward to voting on this – and I believe the vast majority of South Dakotans understand while it is perfectly fine to make some money, it is an entirely different thing to prey upon the financially ignorant and the poor.
The payday loan industry has had YEARS to address this problem by self-policing the industry to ensure borrowers weren’t rolling loans over time and time again. They haven’t taken one step to help borrowers get out of the debt cycle and instead brag about how their industry offers alternatives to overdraft fees or late payment fees as if they want us to believe that is why people use their services.
As a sidenote, have you ever noticed in many cases how close the payday loan and check cashing places are to a casino? In some cases they are right next door… and for good reason. We are allowing predatory lenders to prey upon people who have gambling addictions… and we are supposed to stay out of it because the free market should decide?
Enough is enough. The predators have made their millions upon the backs of those who can least afford to be taken advantage of, and the consequences of this spread throughout our state in the form of kids who come to school without winter coats, single moms who can’t make their car payments and are struggling to get to work, and families who fail to thrive due to the burden of debt which results in them being on government assistance longer, and thus costs the taxpayers even more.
If we are serious about poverty and helping lower income families, ending predatory lending is a bold (and necessary) first step. Kudos to Steve and Steve for making this happen.
I don’t see anything about video lottery, Craig. Why the disparity?
I agree with most of Craig’s comment. Reality, however, rears its ugly head in SD in many more ways than payday loans, as it would seem our entire state economy is premised upon preying upon the financially deprived and the poor, including our local governments.
http://www.motherjones.com/politics/2012/05/government-corporations-profit-poor-people
A couple excerpts:
“At the local level though, government is increasingly opting to join in the looting. In 2009, a year into the Great Recession, I first started hearing complaints from community organizers about ever more aggressive levels of law enforcement in low-income areas. Flick a cigarette butt and get arrested for littering; empty your pockets for an officer conducting a stop-and-frisk operation and get cuffed for a few flakes of marijuana. Each of these offenses can result, at a minimum, in a three-figure fine.
. . .
According to one of the few recent nationwide estimates, from the National Association of Criminal Defense Lawyers, 10.5 million misdemeanors were committed in 2006. No one would risk estimating the average financial penalty for a misdemeanor, although the experts I interviewed all affirmed that the amount is typically in the “hundreds of dollars.” If we take an extremely lowball $200 per misdemeanor, and bear in mind that 80 to 90 percent of criminal offenses are committed by people who are officially indigent, then local governments are using law enforcement to extract, or attempt to extract, at least $2 billion a year from the poor.
And that is only a small fraction of what governments would like to collect from the poor. Katherine Beckett, a sociologist at the University of Washington, estimates that “deadbeat dads” (and moms) owe $105 billion in back child-support payments, about half of which is owed to state governments as reimbursement for prior welfare payments made to the children. Yes, parents have a moral obligation to their children, but the great majority of child-support debtors are indigent.
Attempts to collect from the already-poor can be vicious and often, one would think, self-defeating. Most states confiscate the drivers’ licenses of people owing child support, virtually guaranteeing that they will not be able to work. Michigan just started suspending the drivers’ licenses of people who owe money for parking tickets. Las Cruces, New Mexico, just passed a law that punishes people who owe overdue traffic fines by cutting off their water, gas, and sewage.”
Are payday lenders the biggest problem the poor in SD face – hardly.
Not sure what you mean Les – I didn’t go on a rant about video lottery primarily because the topic is about predatory lending.
However, video lottery is different. First, it isn’t deceptive – they don’t hide the fact that the odds are against you and it is very clearly defined as gambling. When you insert a $5 into the machine, it doesn’t credit you with $3 and then tell you if you want to continue playing you will need to add another $5 every 10 minutes just for the privledge of sitting there.
Payday lending and Video Lottery might both be choices, but it is only the payday lenders who pretend their product is helping someone when in reality it is doing the exact opposite. Payday lenders also refuse to acknowledge their borrowers end up in a debt cycle making it all but impossible to pay off the loans… so you see the same borrower taking out one payday loan after another, and the only people coming out ahead are those who own the payday lending companies.
I’m also not aware of the industry funding any financial literacy classes or offering support helplines for those who need an alternative. Their entire business play involves ensuring the customer doesn’t really know what they are getting until it is too late. We can do better.
Payday lenders and all the rest who exploit desperate people are despicable.
I have a client with an IQ of about 65-70. She’s unable to hold a job because she also has physical issues. She lives on disability assistance in public housing. She uses payday lenders sometimes. I’ve talked to her about the interest rates and that she loses much than she realizes. She doesn’t have the mental capacity to understand it. Those payday slime balls love her.
(No, we don’t have the legal authority to stop my client from borrowing from them. We’ve tried.)
Here is a tidbit from Lincoln Savings and Loan-Charles Keating’s private moneymaker S&L that cost the fed billions in unsecured losses.- A sales document from this period urges staff to, “always remember the weak, meek and ignorant are always good targets.” [72]
Truer words have never been spoken and this applies to thugs at payday lending services,as well.
I tend to disagree, Curt. Lottery and pay day loans both ride on addictions and ignorance or lack of ability to understand.
who drives financial schemes to their logical extremes, damned the “unexpected” consequences? eb5, moyers’ quote about wall street bonuses exceeding middle class wages, the psychology of predatory greed, cheating and super bowl advertising, red state majorities, arms manufactures, personal choice, addiction, 2nd amendment, lack of mental and medical health care, homeless vets, children and suicide, citizen’s united’s “free speech”, daugaard’s anti-liberal arts, anti-science idiocy. who does that? imagine? who started the fire? Nashville crap, 80s rock with a fiddle and kim kardashian’s husband will stop abusing the term “artist”. city bank, mitt’s 47%, Oklahoma high rise churches of tammie faye. how are these absurdities possible? law enforcement industrial complex. without competent morale leadership, the republican beast is insatiable. Obama is a shining star. thune, noem and rounds…please stop promoting fear and deception, go back to the ranch or filling sand bags seasonally along the muddy mo. I tend to disagree les. profit incentive is based on intentional methodology of deception, not ignorance and lack of ability to understand.
our future as a nation lies with a 1st female president and democratic majorities, and I suspect the little people are about to rise up and take it back. weiland and Daschle may be back in a big way. iran and its ilk will negotiate, barry will bask on the forested slopes of the other side of Oahu taking well-aimed shots ate the right wing’s scalia, Roberts, Thomas ect., we will be successful slowing global climate change, and fossil fuels will go the way of the dinosaurs for the most part. the school of mines will become a day care center and particle physics t=shirts will replace black rally fashion.
:)
We all seem to agree that we should not build our economy or our tax revenue on exploitation.
Curious: would anyone vote down the rate-cap initiative because they think Hickey and Hildebrand should be tackling the bigger problem of gambling addiction? Or vice versa: would anyone vote down an anti-video-lottery initiative just because they think payday loans are a bigger problem?