HB 1161 is a 45-section unpleasantry adding numerous regulations to South Dakota’s lending laws. It exempts state and national banks, South Dakota trust companies, bank holding companies, and any other FDIC-insured institutions, meaning it, like Initiated Measure 21, the real 36% rate cap, targets short-term lenders. HB 1161 spins a lot of ink codifying what you’d think is already obvious: lenders can extend a consumer line of credit, they may charge interest and fees, customers have to pay by the due date…
…and then tucked in Section 6 is this landmine:
In addition to periodic interest, a licensee may also charge and collect a periodic fee for the inspection, verification, processing, and protection of collateral and establishment, perfection, and release of any security interest. The periodic fee is not deemed to be interest for any purpose of law [Section 6, House Bill 1161, introduced 2016.01.28].
Review the key text of IM 21, which we get to vote on this November:
…no licensee may contract for or receive finance charges in excess of an annual rate of thirty-six percent, including all charges for any ancillary product or service and any other charge or fee incident to the extension of credit. A violation of this section is a Class 1 misdemeanor. Any loan made in violation of this section is void and uncollectible as to any principal, fee, interest, or charge [excerpt, Initiated Measure 21, submitted 2015.07.07].
Oh, the ambiguity! IM 21 caps payday loan “finance charges” at 36% and specifies that the cap includes all other charges and fees related to the loan. Yet House Bill 1161 defines a separate fee that is not to be considered “interest” for any purpose of law.
Looking at the text of HB 1161 and IM 21, I would think the language of IM 21 would still include HB 1161’s periodic inspection/processing fee as a charge “incident to the extension of credit.” But then I like IM 21. The payday lenders may be setting up a devious legal trap to tangle enforcement of IM 21 if it passes.
More trappage may lie in Section 43 of the bill. That part of HB 1161 says that “No licensee licensed pursuant to this Act is subject to the provisions or requirements of chapter 54-4.” IM 21 puts the 36% rate cap in Chapter 54-4. Hmmmmm….
Rep. Langer and two other sponsors—Rep. Roger Solum (R-5/Watertown) and Rep. Tim Rounds (R-24/Pierre) fell for propaganda from North American Title Loan and other usurers back in 2014 when they voted to kill HB 1255, the bill Rep. Steve Hickey proposed to curb payday lenders’ abuses. The defeat of that bill prompted Hickey to sponsor the 36% rate cap petition, which North American Title Loan’s owner Rod Aycox has spent $2.1 million so far to oppose.
HB 1161 is supposed to go to House State Affairs, but it hasn’t been scheduled for two weeks. As we wait for the hearing, let’s ask the sponsors who brought them this bill and what impact they think it will have on the payday loan rate caps we’re being asked to vote on in November. If their eyes get shifty and the answer is unclear, or if they straight-up tell us HB 1161 insulates payday lenders from the 36% rate cap, then we need to kill this bill now and let the people decide in November, not sneaky lobbied legislators in February, what to do about predatory lending in South Dakota.