Payday loan and credit card businesses are flocking to South Dakota

The cash advance loan industry has been booming during the last ten years, as more and more states have either loosened their banking restrictions or looked the other way while these businesses moved in. While the nation, as a whole, already has more payday loan and check cashing stores than McDonald’s and Burger King restaurants combined, South Dakota has more cash advance stores per capita than all but one other state. The sparsely populated home of the Black Hills has 297 such stores; that’s one for every 2500 residents. If California had as many per capita, it would have 12,000 such locations.

But it doesn’t. Why is South Dakota such a haven for these expensive lenders?

Loose banking laws, for one thing. South Dakota has few residents, but the politicians within the state decided years ago to attract out of state business by loosening the state’s banking regulations. In fact, the state no longer has any laws whatsoever regarding interest rates. Lenders doing business within the state may charge whatever interest rates they wish.

Along with that is the implication that any business headquartered within such a state can do business elsewhere under that state’s laws. So, banks, credit card companies and quick cash companies have flocked to South Dakota to cash in. And while those businesses have done well within the state, they have done particularly well outside the state, while lending money elsewhere at South Dakota rates. By doing so, they have managed to circumvent the usury laws of other states that do not permit high interest lending.

Of course, the plethora of such stores in South Dakota suggests that there is a need for such business within the state, as well. Sioux Falls has more than 40 quick cash stores, a surprising number for such a relatively small town. Then again, the state is mostly rural, has relatively little industry short of banking and agriculture, and therefore has a population base that earns relatively low wages.

And where there are low wages, you will find cash advance stores. These businesses do particularly well in neighborhoods where people live paycheck to paycheck and need occasional help to tide them over until payday. The fact that they may have to pay 400% or more to borrow such sums for two weeks seems not to bother the borrowers much, otherwise we’d be writing about all the loan stores that are closing there.

And the phenomenon is not unique to South Dakota. Other states which have loosened their banking laws, such as Utah, have found that when the banks move in to do business out of state, the quick cash stores move in to do business in state. It’s just part of the price that politicians pay when they sell their states out to those who wish to lend money at high interest.

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