Payday Lending Cap Strikes Wrong Chord with South Dakota Investor
The last electric guitar was unplugged Friday at the Brennan Rock & Roll Academy in Sioux Falls, S.D. The school closed because South Dakota voters approved a ballot initiative in November to cap payday loan rates at 36 percent.
What’s the connection?
One of the kingpins of payday lending in South Dakota is Chuck Brennan, the owner of Dollar Loan Center. Not coincidentally, the music center that shares his name depended on Dollar Loan Center for most of its funding.
Now Brennan, because of the payday lending cap, is pulling out of South Dakota.
“Without a substantial and dependable source of funds to continue providing nearly 200 free lessons every week, the Board of Directors for the BRRA has made the difficult decision to dissolve the non-profit,” read an announcement on the academy’s website.
Brennan has also announced plans to sell off another major investment he has in South Dakota: the Badlands Motor Speedway.
“Mr. Brennan has invested and donated well over $100,000,000 in his home state of South Dakota and most of that investment within a mile of where he grew up at 8th Street and Covell Avenue in Sioux Falls,” read a post on the Badlands Motor Speedway website.
“Because of these recent events, Mr. Brennan is reevaluating his economic presence in South Dakota and will be selling several of his many properties and businesses in the state and diverting that business to the other markets that he currently operates in,” the announcement added.
Historically, South Dakota lenders were allowed to charge whatever they could get customers to agree to. A 2014 Pew Charitable Trusts report found the average annual percentage rate charged for a payday loan in South Dakota was 574 percent.
South Dakotans for Responsible Lending campaigned successfully for Initiated Measure 21, which caps short-term lending interest rates at 36 percent.
Pastor Steve Hickey, a former Republican state legislator, teamed up with Steve Hildebrand, a gay former Obama campaign adviser, to lead the South Dakotans for Responsible Lending coalition.
Hickey and Hildebrand got together as the result of a Twitter feud over gay marriage. Rather than sending out endless tweets, they decided to get together for coffee.
The result has rocked the South Dakota payday lending industry, and left many state residents wondering how to get money to put food on their tables.
The Associated Press declared victory for IM 21 only a couple of hours after the polls closed Nov. 8, with 75 percent of South Dakota voters in favor of the proposal. A competing measure, which would have allowed lenders to charge an interest rate as high as customers were willing to accept and made it more difficult to ever pass a law capping interest rates, was rejected.
South Dakota’s payday lenders warned voters that approval of IM 21 would effectively eliminate short-term consumer loans. That, the lenders said, would leave people with bad credit ratings, or no other source of money.
“To put things in easy terms, we normally charge around $20 for someone to borrow $300 for a week. This new law would limit us to charging $2.00 for that same loan,” read a post on the Dollar Loan Center’s website, dontbebroke.com. “No short-term lender in the state of South Dakota will be able to help you with these restrictions.”
Now, just as they had threatened, payday lenders are closing the window on new loans in South Dakota.
“Advance America centers in South Dakota remain open but have ceased offering new loans as we explore our options,” Jamie Fulmer, senior vice president of public affairs at the biggest of the top three payday lending chains in the state, Advance America, told Capital Journal.
Check Into Cash, another of the top three lenders, also stopped loaning money at all eight of its South Dakota offices.
So what are the people who depend on payday lenders for new money going to do now?
To begin with, Hickey said there are people in South Dakota who should not be lent money, no matter what, because they have no ability to repay the loan.
But they have to eat, right? What are they supposed to do now?
Here’s a thought: Hickey wrote on the South Dakotans for Responsible Lending Facebook page that employers could offer payday loans to employees at zero percent interest.
“Maybe there is a legislative way to incentivize or encourage our small and large businesses to offer an employee benefit in the form of 2-4 payday advances a year,” Hickey wrote. “If indeed a payday loan is needed, it should come from the person issuing the paycheck.”
Another idea Hickey offered involved backing small loans to cash-strapped residents with state money.
Supporters might be converting the pumpkins they painted with signs of support for the campaign into holiday pies, but Hickey said the South Dakotans for Responsible Lending coalition wouldn't disband simply because of the Nov. 8 victory.
He’s afraid payday lenders will be back.
“We anticipate the need to be vigilant to ensure the payday/title loan industry doesn’t try again to sneak something through the legislature,” Hickey wrote.
Meanwhile, back to that person who has no cash: Now that a payday loan is not an option, where does he or she go to get the money needed to put food on the table?
Trevor Johnson, the owner of Presidential Pawn & Clock Shop in Rapid City, S. D., told KOTA-TV that a business like his might be that person’s best option.
"On a pawn loan there is no obligation to repay the loan," Johnson said. "There are no hard feelings; we don't report to credit bureaus. Here someone can bring in an item of value and borrow against it and use that item as collateral, and if they don't come back we don't mind.”