- Associated Press - Monday, December 8, 2014

SIOUX FALLS, S.D. (AP) - Opponents of payday lending may be waiting until the 2016 elections to try to effectively end the practice in South Dakota, but the state will pitch smaller regulatory changes during the upcoming legislative session.

The South Dakota Banking Commission voted on Friday to move forward with legislation to close a legal loophole payday lenders use and to try to better regulate Internet loans offered by companies not licensed in the state. Rep. Steve Hickey, who has previously pushed for stricter regulations on short-term lenders in the Legislature, is preparing a ballot initiative to cap interest on payday loans at 36 percent. If it overcomes the necessary hurdles, the measure would go before voters in 2016. Both sides have said it would effectively end payday lending in South Dakota because it would make it difficult to keep a business profitable.

Advocates argue that payday lending offers access to credit for people who can’t qualify for bank loans, while opponents call it a snare engineered to profit off the poor.

“It’s an industry that’s intentionally built and marketed to financially unsophisticated people, and it’s crafted such that it becomes a long-term debt trap,” Hickey said. “I call it the poverty industry. There are people that are making millions off the poor, and it’s a blight.”

The Sioux Falls Republican said he abandoned a ballot proposal to work with payday lending firms during the 2014 session on a compromise. The companies ended up opposing the legislation, and it ultimately failed, so Hickey is marching back toward the ballot.

He said on Monday that attorneys are working to craft the measure’s language and that his coalition hopes to begin collecting signatures by the middle of the spring.

Dollar Loan Center founder Chuck Brennan, who has 11 locations in South Dakota, said short-term lenders would fight to educate the public about how payday loans actually work. He said the eye-popping annual interest rates on loans that opponents cite ignore the fact that many consumers quickly pay back the loans - making them cheaper than other options.

“The industry is simply just out of business” in South Dakota if voters approve the ballot measure, Brennan said.

As the ballot-question process moves forward, lawmakers will likely debate much less sweeping changes to the regulations governing short-term lenders in the upcoming legislative session.

One provision would attempt to stop Internet lenders not licensed in South Dakota from preying on state residents by making only the amount borrowed - and not interest - collectible. The Banking Commission also supported provisions that would go before lawmakers to close a loophole some lenders were using to get around loan renewal limits and payment requirements.

“This is just kind of (a) putting our finger in the next hole kind of thing,” Director of Banking Bret Afdahl told the commission. “I’m sure they’ll come up with a new avenue.”

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