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.
Yes we should keep a close eye on the bills that tweak IM21/Rate Cap.
I can report that both bills have come along with full involvement from our side. We think they are unnecessary, especially the Rounds bill, but they have been keen to oblige us in the amendment process to relax our concerns. We oppose the Rounds bill at this point but not enough to call in the troops to demand it be stopped.
The origin of it is my biggest issue with it. It comes from a DC outfit (American Financial Services Association) to a SD lobbyist to Rounds. The DC outfit is known elsewhere for fee stacking and playing games in rate cap states. Can’t think of any reason why any SD lawmaker would want to make a change at the request of a DC-based low level lending outfit. However the SD auto dealers association got involved and we have shifted the bill to their needs instead of the DC outfit.
The whole matter relates to certain auto loans on the secondary market. Again, we think it’s unnecessary and last I heard so does the Division of Banking. My personal opinion is the Division of Banking can promulgate rules to solve any fuzziness about whether the rate cap even applies to these loans, we don’t think it does.
I personally support the business to business lending bill in the Senate that also effects IM21, though our coalition opposes it on principle…. charging high interest isn’t good even it is only to businesses. My personal concern in my involvement in the ballot measure was for the poor, and the rate cap was strictly written to only apply to payday and title loans. If it is true that it also effects this other product, I’d personally vote yes to make sure business loans are not included in the rate cap.
Is that clear as mud? Officially SDns for Responsible Lending opposes both the Senate and the House bill that tweak the rate cap measure. However, our opposition isn’t strong, and I personally have zero angst about the business to business ending bill in the Senate.
With the exception of a couple lobbyists all involved have been very interested to seek our help on these bills and make the requested changes. In making those changes they really toned down our opposition to the bills. Had they not made the changes, we’d be fighting back hard. And we will still do so if the other chamber tries to change what we have agreed on to date.
Pastor Hickey, I do so appreciate everything you did to pass IM21.
Quick question, now that businesses are people too, do Christ’s words on usury apply to them as well?
An eager reader points out that House Judiciary shot down an identical bill, HB 1108, this morning, with vigorous lobbying pro from the property and casualty insurance industry and con from the trial lawyers and collection companies.
Good on Cory for eyeballing House Bill 1090. If a proxy payday lender could sell a ball point pen on the installment plan with the same terms as a hundred dollar 350% interest loan, the people’s vote would be usurped, again.
Pre-judgement interest should be at a level which doesn’t encourage games to be played.
If the interest rate is too low, the side which would pay money if they lose has an incentive to delay as long as they can because the interest rate is too low.
Conversely, if the interest rate is too high, the side who will get paid money has an incentive to delay because they are earning such a high interest rate.
Rather than setting the nominal rate, it makes sense the rate is variable against a good benchmark like prime. Prime+3% seems like a reasonable number.
P.S. This statement is technically incorrect: “Rep. Rounds should explain why he wants to lower damages on contract lawsuits today.” The interest rate is the cost paid to the harmed party from the time the damages were incurred until paid. The interest rate is not “damages.”
Troy, I appreciate the technical point. I can see the legal and mathematical distinction between damages and interest.
However, couldn’t we contend that interest measures the ongoing damage done over time? If I damaged you by taking $100K out of your pocket on January 1, 2010, and if I didn’t repay you until January 1, 2017, didn’t I also damage you by depriving you of the interest you could have earned over the last seven years?
CH,
Damages and interest are distinct legally and technically and it is important to keep the distinction.
Damages are set by the judge/jury as per the outcome of the trial. And, in some cases, the damages can grow the longer the lawsuit takes. For instance, a person is deprived of the building they use to run their business. And, such increase in damages continues to occur until the plaintiff gets their building back or is able to buy/build a new one.
The pre-judgment interest is to COMPENSATE for the loss of access to money (or other things) from the moment the damages occurred until you finally get paid post-trial resolution. The reason they are set by law is an attempt not to create incentives for one party or the other to use delay tactics to take advantage of the time value of money.