March 14, 2017
In the past three days, the South Dakota governor has signed into law two significant pieces of legislation, limiting the 36% rate cap approved by South Dakota voters as part of Initiated Measure 21 last November.
Initiated Measure 21, which was expressly intended to curb alleged abuses against consumers by payday and title lenders, prohibited certain state-licensed money lenders from making a loan that imposed total interest, fees, and charges at an all-in annual percentage rate greater than 36%.
As adopted, however, the rate cap applied not only to payday and title loans to consumers, but also to traditional installment loans, including commercial loans to small businesses. Also, under a tortured interpretation, the South Dakota Division of Banking took the position that the rate cap, along with other substantive provisions of the Money Lending Licenses Act ("MLLA"), applied to retail installment sales of vehicles and other goods and services. The Division of Banking also took a very broad view of what fees must be included in the rate cap, including fees that are charged equally in cash and credit transactions (e.g., sales tax and title fees), as well as fees charged only after a consumer's default (e.g., late fees, return check fees and attorney's fees), making it difficult for traditional installment lenders to continue to do business in South Dakota.
To correct these unintended consequences, the South Dakota legislature enacted legislation, effective July 1, 2017, that establishes the following:
Links:
Prior Alerts:
November 9, 2016 - South Dakota Approves 36% Rate Cap for Certain Licensed Money Lenders
November 23, 2016 - South Dakota Division of Banking Issues Memo to State-Licensed Money Lenders Regarding IM 21