Extinction of Payday Loans in South Dakota Effecting the Consumers
For past 16 years, arranging quick money to meet emergency financial needs was very easy for the South Dakota residents with existence of short term loans. They were the best financial aid with hassle free application process, due to which payday loans South Dakota gained immense popularity.
But in late 2016, a campaign started from the consumers who got trapped by few payday lender with high interest rate and loan fee, got government’s attention. It leads to the interest rate be capped to 36% by the state legislation. However, this new regulation was not profitable for the lenders and 15 months later the payday lending business called off in South Dakota. Some institutions claim that era ended the predatory lending in the State. The need for instant cash remain same in South Dakota but the options for short-term borrowers have become few. Some borrowers have turned to pawn shops to arrange quick money and some have visited credit unions or financial counseling services for monetary help. Also, the consumers are now turning to online lending services which may be less regulated as per the banking officials.
During the campaign, people who felt trapped in payday lending interest rate cycle came forward claiming to be charged 1,000% APR by the lenders. In defense, the payday industry spent more than $1 million to oppose new rate limits, but the stories of people who borrowed too many loans, title loans and signature loans put all the efforts of the payday lending industry in vein. The 36% APR limit remain in effect for 10 days and after that all of the state’s 440 licensed short-term lenders hanged sign boards on their front doors informing customers the shops were about to close. Within months, the entire industry stopped giving loans and all the phone calls led to disconnection messages.
Most of the Trouble Is Faced by Poor due to Less Availability of Payday Loans
Records from the South Dakota Division of Banking show that in early 2018, the office saw 73 non-renewals of annual licenses, of which 52 were short-term lenders. Only a few dozen payday lenders remain licensed in South Dakota. Opponents of short-term lending said IM21 put an end to usury lending and has led people to seek sources with lower interest rates. But to lenders, the extinction of the payday loan industry has actually penalized the poor, eliminating one easy way for people who live paycheck-to-paycheck to obtain immediate cash to pay an emergency bill, buy food or pay utility bills between paydays. Borrowers who had a job could obtain a pay day cash advance loan for up to $500. State law allowed lenders to rollover the loan up to 4 times after the initial loan, and borrowers were required to pay 10% of the principal amount for each renewal. According to legislation in South Dakota, the borrower would owe 10-25% interest per month for a loan amount between $100-$500.
Difficulty arises if the borrower could not pay back the whole amount on due date. In the case of a $100 loan, the $25 fee still owed along with a $10 payment toward principal, so with 4 renewals, the payments and interest rates would obviously skyrocketed. Based on income, a consumers might be able to afford a $1,200 monthly mortgage, but instead of paying that they buy five houses and have five mortgage payments of $1,200 each thus increasing their financial trouble. Hence, it is not reasonable to blame the payday lending industry alone.
Where Did Former Payday Loans Borrowers Go?
There is no question that the need of quick cash remains same in South Dakota for people who need to attend emergency financial calls. Some credit counselors think that borrowers simply migrated to online payday lending affiliate that appear on Google search for “payday loans” instead of turning to banks or credit unions for small cash loans.
Pawn Shops Notice Increase in Business
Pawn shops function like payday loans except that they require collateral, and do not allow contracts to extend for more than 30 or 40 days. Interest rates on pawn shops usually range from 20-25% with a 240-300% APR.
The payday lending is a huge business across the United States. In 2016, according to federal data, 12 million Americans borrowed $7 billion from 22,000 storefronts. South Dakota is one of 32 U.S. states that allow payday lending. The loans are allowed in all Great Plains states, including Iowa, Minnesota, Nebraska, Montana and South and North Dakota. North Dakota pay day loans still operate, without complaint, due to laws and regulations imposed in North Dakota which have put sensible limits on short-term lending that enabled the customers to get money without any risks.
