Erin Ageton, vice-president of operations for predatory short-term title lender Select Management Resources, filed suit on June 5 in Sixth Circuit Court to delay circulation of the payday-lending rate-cap initiative petitions. Specifically, Ageton accuses Attorney General Marty Jackley of writing a faulty explanation of the initiative and asks the court to order Jackley to rewrite that explanation. Initiative petitions must include the Attorney General’s explanation; this lawsuit thus delays the Secretary of State’s approval of the petition for circulation for at least fifteen days.
This lawsuit pits Republican AG Jackley against Ageton’s prominent Republican lawyer Sara Frankenstein. Mmmm… this should be more fun than the lawyer-on-lawyer violence of the Bosworth trial!
Let’s look at the vital documents and passages first; then I’ll explain why Ageton is wrong.
Nuts and Bolts
The rate cap initiative proposed by Steve Hickey and Steve Hildebrand includes this key provision:
However, no licensee may contract for or receive finance charges in excess of an annual rate of thrity-six percent, including all charges for any ancillary product or service and any other charge or fee incident to the extension of credit [ballot initiative, included in Attorney General’s submission to Secretary of State Shantel Krebs, 2015.05.27].
South Dakota Codified Law 12-13-25.1 requires the Attorney General to prepare the following information for every ballot initiative:
…The attorney general shall prepare an attorney general’s statement which consists of a title and explanation. The title shall be a concise statement of the subject of the proposed initiative or initiated amendment to the Constitution. The explanation shall be an objective, clear, and simple summary to educate the voters of the purpose and effect of the proposed initiated measure or initiated amendment to the Constitution. The attorney general shall include a description of the legal consequences of the proposed amendment or initiated measure, including the likely exposure of the state to liability if the proposed amendment or initiated measure is adopted. The explanation may not exceed two hundred words in length… [SDCL 12-13-25.1].
To fulfill this statutory obligation to educate the voters, AG Jackley delivered the following explanation to the Secretary of State on May 27:
Title: An initiated measure to set a maximum finance charge for certain licensed money lenders
Explanation: The initiated measure prohibits certain State-licensed money lenders from making a loan that imposes total interest, fees and charges at an annual percentage rate greater than 36%. The measure also prohibits these money lenders from evading this rate limitation by indirect means. A violation of this measure is a misdemeanor crime. In addition, a loan made in violation of this measure is void, and any principal, fee, interest, or charge is uncollectable.
The measure’s prohibitions apply to all money lenders licensed under South Dakota Codified Laws chapter 54-4. These licensed lenders make commercial and personal loans, including installment, automobile, short-term consumer, payday, and title loans. The measure does not apply to state and national banks, bank holding companies, other federally insured financial institutions, and state chartered trust companies. The measure also does not apply to businesses that provide financing for goods and services they sell [Attorney General Marty Jackley, ballot explanation, submitted to Secretary of State Shantel Krebs, 2015.05.27].
According to Ageton’s application for writ of certiorari, the Attorney General left a key fact out of his explanation:
Although Respondent’s Statement accurately repeated certain parts of the Measure, the Statement fails entirely to mention the purpose, effect, and legal consequences of the Measure: to eliminate the short-term lending marketplace, and to eliminate a key source of short-term credit, in South Dakota [Erin Ageton, Application for Writ of Certiorari, 2015.06.05].
Ageton contends, with the supporting documentation in her affidavit, that putting short-term lenders out of business and forcing South Dakota borrowers to “turn to other less desirable markets” [Ageton App, p.9] are the certain and inevitable “purpose, effect, and legal consequences” of the initiated measure. AG Jackley must include this statement in his explanation to properly educate the voters.
Why Ageton Is Wrong
Folks in business or politics tend to confuse educate with propagandize. Ageton is asking the court to force the Attorney General to go beyond his statutory duty to explain the text of the law itself (which he does, objectively, clearly, and simply) and favor opponents of the initiative by promoting the political arguments and economic speculation they dress up as fact.
1. Ageton wants Jackley to tell voters that the rate cap will eliminate short-term lending. Ageton adorns that claim with math [App, pp. 10–11] demonstrating that revenue from 36% interest would not cover the cost of making such loans. Maybe Ageton cannot or does not want to operate under a 36% rate cap, but that’s a business choice, not an inevitable outcome of law. Ageton ignores the possibility that other, braver, more clever entrepreneurs could streamline, innovate, and offer short-term loans more cost-effectively.
2. Ageton wants Jackley to tell voters that the rate cap will force consumers to seek loans on “less desirable markets” [App, p.9]. Ageton says the banks and other institutions exempted from the rate cap “are not likely to provide credit opportunities to replace those lost when short-term lenders are forced to close their doors” [App, p. 13]. Ageton’s own words—”not likely”—and the words of her cited expert paid by payday lending opponents to prepare research against a rate cap proposal in Missouri in 2011—”almost assuredly” [App, p. 12]—fail her “certain” test. Her argument rests on the assumption of current market forces, in which predatory payday lenders take advantage of consumers; cull the predators, and other more desirable actors may be able to move into that part of the lending ecosphere.
Asserting that reputable financial institutions won’t fill the gap, Ageton wants Jackley to step beyond objectivity and stamp onto the petition and our ballots her opinion that other markets for consumers’ lending appetites are “less desirable” (an opinion we should expect of any business person trying to keep market share away from competitors). Even if there are less desirable options than predatory payday lenders, there is no certainty that consumers will turn to them.
The Montana experience refutes both prongs of Ageton’s flimsy fork:
The experience of Montana offers a mixed narrative—in the wake of regulations on payday lending, some borrowers have turned to credit unions, but it’s unclear what has happened to others. “Montana has zero licensed payday lenders since the passage of the rate cap in 2010,” Hall noted. Jacobson rejected the industry’s claims that the ban had hurt customers. “We didn’t see any of that,” he said. “We didn’t see a spike in bankruptcies, or even in pawn shops.”
Instead, Montana Credit Unions for Community Development’s small loan program “grew 25 percent in the third quarter of 2010,” Claudia Clifford, the Advocacy Director of AARP told me. The Montana Credit Union Network also ran a small-dollar loan campaign with 14 participating credit unions. Over 18 months, they issued 3,808 small loans worth $2.2 million, with an average loan of $575 [Sean McElwee, “The Odd Couple Fighting Against Predatory Payday Lending,” The Atlantic, 2015.03.19].
No payday lenders, but no bankruptcy boom, no pawn shop pick-up, credit unions making more small loans… Ageton’s claims don’t sound certain at all.
3. Ageton asks for an exhaustive explanation that contradicts Legislative intent. Suppose Ageton weren’t asking Jackley to play economist fortuneteller. Suppose she were talking about absolutely certain impacts of the rate cap and that those certain impacts met the definition of “purpose”, “effect”, and “legal consequences” (which Ageton argues are mostly identical and include almost anything—see App, pp. 6–7).
A law can have multiple purposes, effects, and legal consequences. If the Legislature had intended for the Attorney General to list every certain outcome of a law, not to mention Ageton’s Rube-Goldberg machine of possible impacts (law caps interest rates, we payday lenders quit, innovation fails to happen, banks don’t step up, consumers all pawn their titanium hips…), the Legislature would not have limited the Attorney General’s explanation to 200 words. While the Legislature’s recently added mandate of a statement on legal liability to the state biases the ballot against ballot measures, the word limit and the directive words “objective, clear, and simple” in SDCL 12-13-25.1 make clear the Legislature’s intent that the Attorney General stick to the legal facts and leave further analysis and argument to the press and the campaigns.
But hey, if Ageton really wants AG Jackley to lay it all out for us in his explanation of the rate-cap initiative, maybe she’d prefer the AG write that the purpose of this ballot measure is “to put these usurious SOBs out of business.” Payday lending is certainly usury, and I’ll bet we could find numerous customers who would say their payday lenders are SOBs with at least as much certainty as Ageton puts into her arguments. Yet those statements would violate the AG’s charge to write an “objective, clear, and simple” explanation as surely as the propaganda Ageton would write onto our ballot.
4. Ageton says her fiction is fact while fact is fiction. In a remarkable bit of projection, Ageton says the AG errs in stating that the initiative caps interest rates at 36%. Ageton calls the 36% rate cap “arbitrary”, “fanciful… artifice” [App, p. 14]. She proposes an alternative explanation—”The initiated measure, if adopted, will eliminate short-term loans in South Dakota”—and says the AG should remove the reference to the 36% cap:
This statement removes the proponents’ artificial reference to the 36% “maximum finance charge” as if this were the true purpose, effect, or consequence of the Measure. It leaves proponents and opponents of the Measure free—with no distorting influence from an inaccurate state-provided Statement—to debate the merits or demerits of eliminating short-term lending in South Dakota. The Measure’s proponents are, of course, still free to claim that they only seek to “cap” rates, but this should be their political argument—not the position of the constitutional officers of the South Dakota [App., p. 15].
Read that carefully: the clearest, simplest, most objective fact of this initiative, the 36% interest rate cap, is a distortion, a political argument, but the doom for lenders and consumers that Ageton imputes to the rate-cap initiative is certain fact that demands the AG’s stamp and a place on our ballot.
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The payday lenders have already formed their ballot committee to campaign against this popular effort to rein in usury. Ageton’s lawsuit is the opening legal salvo in what will surely turn into a full assault on the Hickey-Hildebrand initiative. Once AG Jackley deftly whacks this litigious mole in Hughes County court on Monday, more payday flacks will pop up, clogging the courts, screaming over circulators’ shoulders, filing threatening letters, and otherwise trying to block South Dakotans from having their say on Election Day. Let’s not fall for it. Judge, toss Ageton’s bogus attempt to politicize the official ballot question explanation. Lenders, let the circulators do their business. And then let’s have an honest discussion and an honest vote about how we want lenders to conduct business in South Dakota.