Rep. Steve Hickey (R-9/Sioux Falls) continues to fight the payday-loan industry's exploitation of South Dakota's working class. He has threatened to shut the usurers down with legislation and a ballot initiative to cap their interest rates at levels that would wreck their abusive business models.
Now Rep. Hickey is offering House Bill 1255, a compromise that he says he crafted in conjunction with the leaders of the usury industry whom he has made so nervous.
HB 1255 does not fix interest rates. Instead, it changes the maximum principal of a payday loan from $500 to $700 or 25% of the borrower's gross monthly income. That's an intriguing free-market compromise: Rep. Hickey would allow usurers to lure folks making more than two grand a month with somewhat larger loans; in return, he would lower the amount for which the payday lenders can get lower-income workers on the hook.
HB 1255 also grants consumers a brief "borrower's remorse" period. If borrowers take a payday loan, sleep off the pitch man's sweet talk, and realize the next morning that borrowing at 391% is a really bad idea, they can hand back the money and cancel the loan that day.
HB 1255 creates a statewide online database, managed by the state Division of Banking, to monitor whether the payday lenders comply with Rep. Hickey's proposals. HB 1255 assesses a transaction fee to pay for the database, which payday lenders will likely pass on to their borrowers. In addition, HB 1255 charges payday lenders five cents for each loan they make to support the consumer credit counseling fund, plus a $750 license fee surcharge to support a new financial literacy education fund... rather like charging the tobacco industry to pay for public education campaigns to get people to stop smoking.
House Commerce and Energy has left this bill on the shelf for over a week. Let's hit the books, Chairman Solum, and start talking about whether HB 1255 does enough to protect South Dakota workers from predatory lenders.