Voters will be the last jurors in the payday loan fight
It is a struggle that pits free market ideals against perceptions of fairness.
South Dakota’s high-stakes battle over payday loans heads for resolution next week, when voters vote on a pair of conflicting voting questions that could ban or consolidate high-interest short-term loans. in the constitution of the state.
The $ 46 billion-a-year industry, including at least 138 approved lenders in South Dakota, says it won’t be able to operate in the state if voters approve a 36% interest rate cap. Average annual interest rates on payday loans in South Dakota exceed 500 percent, according to a 2014 report from Pew Charitable Trusts.
Advocates of payday loans say they serve as a vital financial lifeline for thousands of low-income South Dakotas, and the product ban will push people to online or black market lenders. A Federal Reserve survey conducted this year found that 47% of Americans couldn’t afford an unexpected spending of $ 400, and many don’t have the credit or collateral to rely on conventional banks.
But an unlikely alliance of progressive activists and religious groups opposes this narrative, arguing that loans are anchors, not lifelines, more likely to trap borrowers in a cycle of poverty.
The 47 percent
Kristi McLaughlin’s husband TJ fell ill and missed a few days of work last year. Not knowing if he could pay his family’s bills on a smaller salary, he signed a $ 1,200 auto title loan.
He agreed to pay $ 322 per month for a year, but when leg injuries became infected and his illness persisted, he lost his job in manufacturing and couldn’t make the payments.
His wife worked to lower interest rates and negotiated a lower cost plan, but ultimately couldn’t keep paying it as medical bills piled up.
“I was like, ‘I’m not doing this,’ so I stopped paying,” said Kristi McLaughlin.
About eight months after taking out the loan, the company repossessed their car on Thanksgiving Day last year. Now, living in a trailer in Sioux Falls with her husband, McLaughlin says she will likely have to file for bankruptcy.
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Video: Payday Loan Client Shares Frustration With Industry
Kristi McLaughlin shares her frustration with her payday loan experience.
Dana Ferguson – Argus Leader Media
McLaughlin wants South Dakotas to support the 36% rate cap so others don’t face the same high rates as his family.
“They exploit very vulnerable people. I don’t think people understand if they’ve never been so vulnerable,” she said. “They don’t understand what it’s like to have nothing but a payday loan.”
Others are willing to accept the high prices if it is their only option to put food on the table.
Henry Okotie of Sioux Falls recently borrowed $ 400 from the Dollar Loan Center to send it to his family in Nigeria.
It was a simple transaction that cost him $ 84 in interest, he said, and he paid it off in three weeks.
Without a payday loan, Okotie, 34, said he didn’t know how we could have found the money.
He was quick to quote the company motto, “When you’re broke, you go,” Okotie joked. “And I didn’t want to be broke so I went,”
For years, former Republican state lawmaker Steve Hickey tried unsuccessfully to convince lawmakers in Pierre to reform the payday lending industry.
Hickey, a culturally conservative former Sioux Falls pastor, found himself in an unlikely alliance after Steve Hildebrand, a former openly gay campaign adviser to President Barack Obama, approached Hickey to voice his comments condemning homosexuality. The two found common ground through their distaste for payday loans, which had put Hildebrand employees and Hickey parishioners in financial trouble.
And as they led a campaign against the payday loan industry, church groups and social service organizations across the state joined the coalition to cap rates.
Meanwhile, money and protesters from across the country have flocked to boycott their efforts.
Payday loan titan Rod Aycox, owner of North American Title Loans, organized professional protesters posing as missionaries to clutter Hildebrand’s business, Josiah’s Coffeehouse and Cafe, in the summer of 2015.
More recently, the Atlanta businessman, through his management company, injected more than $ 2.6 million into South Dakota groups opposed to the interest rate cap.
The industry’s response also included its own voting measure, Amendment U, a potentially confusing question for voters asking whether to set an 18% rate cap with a loophole that would allow lenders to opt out. of the rule.
South Dakotans for Fair Lending, a group backed by Aycox, also challenged the signatures used to put the 36% rate cap issue on the ballot, appealing to the state’s highest court.
“While all of this was going on, and they spent almost $ 3 million to do it, we kept our focus on the November 8 ballot,” Hildebrand said.
Hildebrand said the rate cap would not mean a loss to state lenders if they are prepared to meet the new limit.
“They are going to have to decide if they are ready to put aside their greed,” he said.
Jamie Fulmer, senior vice president of public affairs at Advance America, said the blocking of the measure was not to promote greed, but to protect the option for South Dakotas who need the money in a pinch. .
“There is no question that if you take an offer away, the demand doesn’t go away,” Fulmer said.
According to the Consumer Federation of America, 18 states and Washington, DC prohibit payday lending or impose ceiling rates that effectively prohibit the practice. South Dakota is one of eight states that have set no cap on industry interest rates, along with Delaware, Idaho, Nevada, Ohio, Texas, Utah and Wisconsin.
In Montana, the industry evaporated after voters approved a 36% rate cap in 2010, leaving room for unlicensed lenders to fill some of the void.
Tom Jacobson, CEO of Montana Rural Dynamics Inc.’s financial advisory group and one of the leaders of a similar rate cap measure there, said although reports of online loan scams have been reported in the state, predictions of black markets forming to fill the void had not materialized.
“It was a bunch of Bologna,” he said. “There was no apocalypse.”
Badlands Pawn founder Chuck Brennan, a Washington High School graduate who made his fortune in payday loans and collections, has remained silent for much of the debate. He didn’t spend any money to oppose the measure, but said he didn’t think his customers would want to wipe out the industry.
“If voters want the government to choose whether they want a loan or not,” said Brennan, “then that’s what they will do.”