- Associated Press - Tuesday, July 11, 2017

PIERRE, S.D. (AP) - The South Dakota Division of Banking is investigating whether a short-term lending company’s new loan product complies with an interest rate cap voters passed in the 2016 election, the financial regulatory office said Tuesday.

Voters limited interest rates charged by businesses such as payday and auto title lenders to 36 percent annually. The Banking Division said in a statement that Dollar Loan Center is offering short-term loans in Rapid City and Sioux Falls with a 36 percent annual interest rate, charging late fees if they’re not repaid in one week.

The voter initiative caused many short-term lenders to leave South Dakota. Dollar Loan Center renewed at least two state licenses for 2017, declining to renew eight others, according to information the division released in January.

Dollar Loan Center CEO Chuck Brennan said in a statement to the Argus Leader that the new loan product conforms specifically to the voter-approved measure. Brennan didn’t immediately return a telephone message from The Associated Press.

Democratic Sen. Reynold Nesiba, who helped lead the rate cap campaign, said the product violates the spirit of the law and is a move to evade the cap.

“I’m disappointed and angry that 76 percent of South Dakota voters said they wanted a 36 percent rate cap and here is a local businessperson who says he loves this community that is ignoring the will of the people,” Nesiba said.

Dollar Loan Center’s new “signature loans” come in $250 increments up to $1,000, according to the company’s website, www.dontbebroke.com . Someone who borrowed $250 would be charged a $25 late fee each week until the loan is paid off, while a $1,000 loan would incur a $70 weekly late fee.

Diane Standaert, director of state policy at the Center for Responsible Lending, said the product warrants investigation. South Dakota’s law has a provision that protects against attempts to evade the rate cap, she said.

“Looking at the terms, it appears to be a loan product intended to be difficult to repay and then make money off of the inability to repay those loans,” she said.

The Banking Division will review the terms of the loan in conjunction with state law to determine if the product is in compliance, Director Bret Afdahl said in the statement.

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