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.
Rev. Hickey, remind the good Christians on the floor that usury is a sin! Ask them point blank if they are Cafeteria Christians...and then try not to smile when they answer.
The big banks won't be touched so it will probably go through.
What? No more radio ads like my favorite? You know, the one that has the financially deficient fellow declaring to his mate," Let's get us one of them Payday Loans and go to a real diner. I'm tired of eatin' road kill..."
I never know what to think about these kinds of legislation. Are the regular banks simply trying to remove a level of competitor (and one that serves a high risk sector they probably really don't want any thing to do with) or are there enough abuses to warrant some sort of intervention? As for high interest rates, that goes with the high risk territory. You hold people to a "normal" rate of interest and this source will dry up in a flash. Then we'll back to Loan Sharks.
I would love to see a legislator introduce legislation to cap interest rates in South Dakota at 12.9%, like it was before Janklow and Citibank, just to see what if any debate and public discussion would ensue.
Oh, I know people would come out of the woodwork and cite the loss of jobs, tax revenue, and business climate, but I think we should have this debate at least…. a honest debate. A debate that recognizes that it all began here, in good ole South Dakota. I am talking about predatory banking and the turn of the common mindset in the national banking community from one of paternalistic to one of predatory. I will allege what happen in South Dakota in 1980/81, with the advent of Citibank here, really was responsible for the Great Recession of 2008. Because when South Dakota got rid of its usury laws it set-off an attitude and a dependency in the banking industry for the credit card industry, and over time, the credit card industry changed the minds of the banks and the bankers. They no longer saw the consumer as their friend, their business companion, nor recognized their responsibility within the community, especially if you could increasing do business from afar, (Oh, they like to give out money in the form of donations now and then, but the victors always seem to have crackers for the masses.) This attitude. or should I say this virus or cancer, eventually spread over the entire banking industry over the next two decades greatly causing the every loose and predatory housing mortgage market which unfolded in the last decade, which with its derivative cousin craze caused the Great Recession of 2008 and beyond….. It really did all begin here… It really did….And not on Wall Street…. And we truly do owe America an apology and it can begin by shutting down the payday lenders in South Dakota and setting an example for the rest of the country…. It is time for financial atonement in our State and how ironic a legislator/pastor would be the first to seriously entertain this idea….
Very interesting Winston. Thanks.
Big banks are involved in the predatory lending business. Wells Fargo, US Bank and the other conscience-free usurers, are the money source for the UnBank and the other payday sharks.
Within the past year a regulatory change forced at least some of the big banks out of this particular scam. I don't recall all the details, and I'm really bad at finding specific sources on the web. I'll try to find it. I'll post a link if I do find the right thing.
Deb - Your welcome! Your use of the word "shark" or should we say loan shark is very interesting, because it is not used much any more, because the change in usury laws in this state and nation have actually overtime unfortunately legitimized this word or should we say its practice.
The absence of interest rate caps has not only made loan sharking legal, but overtime socially acceptable as well, I am afraid. It is like as if we legalized prostitution, then over time we would find ourselves no longer calling them hookers or johns, rather just business people and consumers.
Excellent analogy Winston.
While I appreciate the compromise idea, we need to cap interest rates in this state. The payday loan industry claims they need to exist for the poor, but the poor managed before they sprang up like poisonous mushrooms.
The poor have become poorer because of the payday loan industry.
The payday loan industry is an enabler that causes society to ignore the fact that the rise of this industry comes not only from the release of the interest rate caps, but also from the decline of the working class wage earners' wages. The bridge which the payday loan industry claims to offer to the working poor is merely a bridge to no where, because it does not solve the inherently low wages in our state and increasingly throughout our country, and it literally taxes the working poor with fees that they cannot really afford nor need.
We have legislators who are offended that drug users are on public assistance, but how come they are not equally offended that people on public assistance are also using payday lenders, thus feeding an industry with the help of the governments safety net which is further taxed as the poor use what discretionary income they do have to help pay the payday lending fees? Directly, in many cases, our public assistance programs in addition to our inherent low wage reality fund the coffers of the payday lenders at a great expense to the poor, the taxpayer, and all of our futures.
Rep Hickey gave it up when he did not put a cap on loans. The bill was pretty much what the payday loan industry wants. It puts lipstick on the pig and makes us want to think they are regulating themselves. But, high interest rates will still be the practice. Caps need to be there.
Comments are closed.