DURHAM, N.C. – Today the Center for Responsible Lending (CRL) released a report analyzing the impact of a 36% interest rate cap on South Dakota following its 2016 passage by ballot measure. The Sky Doesn’t Fall: Life After Payday Lending in South Dakota finds that some South Dakotans are still suffering the harmful consequences of predatory payday lending from before the rate cap was enacted in the form of aggressive debt collections. But much lower cost options for meeting cash shortfalls are available in the state, and the storefronts that once peppered cities and towns have been replaced by productive businesses. Two years after passage, South Dakotans still voiced strong support for the 36% cap and opposed attempts to undermine the measure.
“Our look at South Dakota after passage of the very popular 36% rate cap on payday loans shows that voters got what they asked for,” said CRL Researcher Charla Rios, who co-authored the report. “South Dakotans understood that payday loans make matters worse for struggling families. Efforts to pass reform through the state legislature were frustrated, so concerned people of diverse backgrounds worked together to take the issue to the ballot. And despite warnings from payday lenders, the sky didn’t fall in South Dakota. In fact, people have much better options than a product designed to trap them in debt.”
In the decade before passage of the 36% rate cap, payday loans carried annual interest rates exceeding 300%. After multiple failed attempts to enact legislative reform, a rate cap campaign led by community organizations, faith-based groups, and leaders across the political spectrum won the support of 76% of voters.
But even though the triple-digit rates are no longer legal, payday lenders have continued to sue customers to collect on loans for which the original amount borrowed had been repaid multiple times over in repeat fees. Examples of these lawsuits were discovered by CRL in small claims court files, including a case showing the borrower had paid over $7,500 in interest and fees flowing from a $2,000 loan, ultimately defaulted, and was sued for $5,044.59.
The CRL analysis found that options are available in South Dakota that don’t have the devastating financial effects of payday loans, which routinely drive borrowers into a long-term debt cycle associated with closed bank accounts, inability to pay bills, and bankruptcy. Payday Alternatives Loans (PAL) and unsecured credit union loans continue to be available and have increased in volume after enactment of the rate cap.
A poll commissioned two years after passage of the cap showed voters continue to support the cap and would overwhelmingly oppose legalizing higher interest rates. Even a majority of those who voted against the rate cap would oppose its undermining by the state legislature, and most South Dakotans would be less likely to support candidates who attempted to undo the cap.
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