Cash advance loan industry is both good and bad for South Dakota

The state of South Dakota rarely comes up in conversation in much of the United States; it would be safe to say that most Americans rarely consider the sparsely populated state at all. The state knows that it is small and not one that attracts a lot of attention or residents.  A number of years ago, South Dakota loosened a lot of its laws relating to banking in order to attract out of state companies to move there. It worked, and now a number of large banking concerns, such as Citibank and Wells Fargo, have a large presence in the state. The key to attracting all of these banks was to eliminate the ceiling that could be charged for interest. By doing this, banks with major credit card operations moved in so that they could charge higher interest rates to their customers.

That has worked very well and the banking industry is thriving in South Dakota. An intended side effect is that many residents now have better paying jobs than they did before. Unfortunately, along with the banks came the payday loan stores, and this is where things have started to get unpleasant.

For the same reasons that large banks have moved to the state, so have the quick cash stores. These lenders specialize in short-term lending of relatively small amounts, typically $100-500. The interest rates charged can often exceed 400% per year, an amount that dwarfs the 30% or so that even the most unreasonable credit card company might charge. And the residents of South Dakota, who are no more or less cash poor than the residents of any other state, have flocked to the hundreds of cash advance loan stores that have sprung up within the state.

This has put the legislature in a bit of a bind, as they are not sure how to react or even if they should react. The state certainly appreciates the jobs brought in by the large banks, but is not interested in the horror stories that often accompany financing offered at 500% per year. These tales are often unpleasant, as borrowers discover that paying back the money can be difficult to do. The industry makes their greatest profits off of the fact that many customers have to “roll over” the financing for another two weeks if they cannot repay time. This has the net effect of “renting money”, a situation that few would envy.  Borrowing $500 can end up costing $1500 or more by the time the money is paid back.

For the time being, the South Dakota legislature is taking a wait and see attitude. There is no current legislation pending, but a few concerned lawmakers are certainly considering proposing some if a solution to this problem isn’t found soon.

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