With November fast approaching, we can all be sure to hear about various measures on the ballots of states all across the land. In South Dakota there are two new measures on the upcoming ballot that should be of interest to people who closely follow financial issues in the state. These measures both have to do with payday loans, but there are some big differences between the two measures that all voters should know about.
The Basics of Payday Loans
If you’ve never taken out a payday loan before, you may wonder just how these loans work. A payday cash advance loan allows borrowers to get cash when they need it (usually between $100 and $500) and then to pay the money back, plus fees when they get their next paycheck at work. The majority of lenders charge flat rate fees, so borrowers understand exactly how much they have to pay back. However, some critics of these loans extrapolate the flat rates, and express them in terms of annual percentage rates fees, like you might pay on a credit card. With the artificially inflated fees in mind, these same critics routinely accuse payday lenders of preying on poor people.
Two Groups and Two VERY Different Measures for Voters to Consider
Since the popular theory is that payday lenders charge high rates that poor people cannot afford, some groups are taking the fight to the lenders in the form of new measures on the upcoming ballot. One group is called “South Dakotans for Responsible Lending.” This group has backed up a proposed ballot measure that would cap “interest rates” on payday loans at just 36 percent. They believe that this move will prevent some South Dakotans from getting stuck in cycles of debt when they roll over their payday loans into new loans.
The other group has a similar goal in mind. This group, called “South Dakotans for Fair Lending” is backing up a measure to cap loans at 18 percent; unless borrowers agree in writing to pay higher rates on their loans. Some payday lending opponents in the state believe that the part about agreeing to pay higher rates represents an importance difference between the two measures.
Steve Hildebrand works with the group South Dakotans for Responsible Lending. He said, “[The 18% proposal is] not going to do anything to cap interest rates in South Dakota.” He went on to say if this measure passes that it would really just serve as a “decoy law.” He believes that if borrowers are allowed to legally agree to pay higher rates that it would stop the new law from being effective. He believes that the fees payday lenders charge are so expensive that people will be desperate enough to pay higher rates if given the option to do so. He also seems to believe that borrowers “won’t understand” what they are agreeing to. This is typical of payday lending opponents; they simply don’t believe that borrowers have enough common sense to understand what they are agreeing to when they take out loans.
The group that is throwing its support behind the 18 percent cap believes that their measure will help consumers, while also preventing payday lending companies from taking too much heat. Essentially, this group wants to enact some protective regulations, without the change being so extreme that it destroys and entire industry in the process. It will be interesting to see which measure gains the most traction between now and Election Day. Either one could have a major impact on the lower income population in South Dakota.