PIERRE, S.D. (AP) - A South Dakota legislative panel on Wednesday rejected further restrictions on payday loans and other short-term lending, so the bill’s sponsor vowed to take the issue to the voters.
The House Commerce and Energy Committee voted 11-2 to defeat the measure, with some committee members saying supporters should continue negotiating with industry representatives to find a compromise.
But the legislation’s main sponsor, Rep. Steve Hickey, said industry representatives helped write the measure after they became alarmed last year by his effort to put a proposed law on a statewide ballot to cap interest rates for short-term loans. Those same industry officials opposed the bill in Wednesday’s hearing, so Hickey said he will start a new effort to put an interest cap on the 2016 ballot.
“I keep my word. I’m going to the ballot,” the Sioux Falls Republican said after the hearing. “This is all a game. Those people expressly told me to put this stuff in the bill and now they are opposing it.”
Hickey said such loans are designed to be renewed, or flipped, multiple times to trap borrowers.
“I believe it’s exploiting the poor and the elderly and those on the economic fringes of our society,” Hickey said.
The bill rejected by the committee would not have limited interest rates for short-term payday loans, title loans or signature loans. Instead, it would have imposed additional state regulations and limited the size of loans based on a borrower’s ability to repay.
Current law puts a limit of $500 on a short-term loan or the total balances of all loans made by a lender to a customer. Hickey’s bill would have changed that to $700, but the loan or a borrower’s monthly payments could not have exceeded 25 percent of the borrower’s gross monthly income.
The measure also would have limited loan renewals or rollovers, allowed extended payment plans with no additional finance charge and required lenders to provide information on loans to the state Banking Division. That database would have been used to determine whether a borrower was capable of taking another loan.
Bret Afdahl, director of the state Banking Division, opposed the bill, saying it would require his office to hire an additional four employees to oversee the additional regulations and the database. South Dakota has 396 licensed lenders of all kinds, but the state received only 12 complaints about those lenders last year, he said.
People who need short-term loans for small amounts use payday lenders because commercial banks mostly no longer make those loans, Afdahl said.
Carol Stewart of Advance America, a South Carolina-based company that has offices in South Dakota and 28 other states, said she worked with Hickey on the bill, but the measure still has some confusing provisions. Such a measure would only work if the state Banking Division supported it, she said.
Stewart said her company would be willing to keep talking with Hickey and others to find a compromise measure that could pass.
Other industry representatives said short-term lenders already are heavily regulated and their fees are reasonable because they charge a specific amount for a loan, usually payable in a couple of weeks after a borrower gets a paycheck. Those fees work out to a very high annual percentage rate of interest, but most customers repay loans on time, they said.
Doug Abraham, a lobbyist for the Consumer Lending Alliance, which represents lenders who make short-term loans using vehicle titles as collateral, said such operations only make loans they believe will be repaid. Customers file only a handful of complaints a year, he said.
“Frankly, we don’t have a problem,” Abraham said.
Rep. Tim Rounds, R-Pierre, said he voted against the bill because it might have driven borrowers away from regulated short-term lenders in South Dakota to Internet lenders that are not regulated. Lawmakers should spend some time seeking a compromise that could be passed in a future legislative session, he said.
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