House committee endorses payday loan plan
February 2, 2006 - Pierre, South Dakota
South Dakota needs to take more steps to protect borrowers who go to payday lenders to get short-term loans at high interest rates, Rep. Joni Cutler, R-Sioux Falls, said Thursday.
Cutler told the House Commerce Committee that the state should try to prevent people from getting into debt and being unable to pay off loans.
"A person's desperation or emergency should not be used to ruin them financially ... This turns into a modern-day form of economic slavery," Cutler said. "We can change that and do no harm to the lending industry."
The Commerce Committee agreed with Cutler, voting unanimously to endorse her bill aimed at protecting those who borrow from payday lenders.
HB1209 would require that payday loan contracts explain any fee or charge, including the cost of the loan as an annual percentage rate. It also would require that no loan could be renewed or rolled over for a new period unless the borrower first paid off at least 20 percent of the loan's principal.
South Dakota has approximately 300 payday lenders. Cutler said loans from those lenders typically are for periods of two weeks to a month, are for $500 or less and carry high interest rates.
Lawmakers have said interest and fees on payday loans can add up quickly if the loans are extended. A weekly $7.50 fee on a $100 loan, for example, would add up to more than $350 in fees at the end of one year.
Cutler said the provision requiring that 20 percent of the loan principal be paid before renewing a loan would help prevent people from getting into situations where interest rates and fees build up to the point they have no hope of ever repaying a loan.
Representatives of short-term lenders generally supported the measure, but they persuaded the committee to remove a part of the bill that would have tightened requirements on advertising.
Companies that advertise nationally might have had trouble meeting the proposed additional requirements, said Brett Koenecke, a lobbyist for the Community Financial Services Association. Other representatives of short-term lenders said existing law already prohibits false, misleading or deceptive advertising.
The committee rejected a proposal to add provisions covering title loans to the bill. Title loans are made on vehicles, but are for slightly longer periods than payday loans.
Sen. Tom Dempster, R-Sioux Falls, also a sponsor of the measure, said the bill seeks to make sure borrowers understand the terms of short-term loans and don't get into trouble. He said it sends a message to lenders to help borrowers avoid trouble.
"It says be my friend and don't let me borrow any more than I can repay," Dempster said.
Rex Hagg, a lobbyist for the Short Term Lending Association of South Dakota, said the short-term lending industry has grown because it provides loans for people who cannot get help anywhere else. People are much better off getting a short-term loan to pay bills, rather than having to pay a series of $35 charges for writing checks that overdraw their bank accounts, he said.
"We think we are being a friend by helping you get by," Hagg said.
The Commerce Committee killed a second measure, HB1179, which would have capped charges to those who borrow from payday lenders.
Rep. Mary Glenski, D-Sioux Falls, said her bill also would have prevented people from renewing payday loans over and over. It would have eliminated an existing law that allows such loans to be renewed up to four times.
Glenski's bill was rejected after opponents said it runs counter to South Dakota's policy of not regulating interest rates.
American News, Chet Brokaw, AP Staff Writer
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