The payday loan industry in South Dakota is warning about possible far-reaching problems if a coalition seeking to ban such lending in the state succeeds.

The movement to stop the high-interest lending, led by state Rep. Steve Hickey, R-Sioux Falls, is calling not just for sweeping changes but a move that would effectively eliminate the industry's presence in the state.

Hickey wants South Dakota voters to pass a measure setting an annual interest rate cap of 36% for payday loans. He doesn't buy the industry's argument that payday lending helps people, believing instead that the loans are designed for the "financially unsophisticated."

Payday lenders argue that if such a rate cap passes the consequences for South Dakota will be dire - including massive layoffs and store closings. Because payday-style loans have short durations, a fee of $15 for a $100 loan can result in annualized interest rates of hundreds or thousands of percent. Payday loan companies say that's not a fair comparison because of the short-term nature of the loans.

Chuck Brennan, founder of the Dollar Loan Center chain, said a 36% cap would result in the entire industry going out of business "the next day, including us." Brennan said that, along with his stores, he'd close the corporate office in Sioux Falls. Other business and charitable ventures Brennan runs also would have to stop, he said.

Some of the members of the coalition to ban payday lending are unlikely allies - including Hickey's co-leader: Steve Hildebrand, a Democratic political operative. Hickey is a pastor who has drawn national attention for comments criticizing same-sex marriage. Hildebrand is a former Tom Daschle and Barack Obama aide and is openly gay.

Even while Hickey and Hildebrand push to try to ban payday lending in the state, the South Dakota Banking Commission is proposing new regulations for the industry. A draft bill would give the state more leeway to deny or suspend a payday lender's license.

It's not clear whether payday lenders will support or oppose that regulation. Jamie Fulmer, an executive with lender Advance America, says his company supports "reasonable" payday lending rules.

Earlier this past year, both Advance America and the Division of Banking opposed Hickey's proposed reforms. A defeat in a legislative committee led Hickey to try the rate cap.

Brennan, with Dollar Loan Center, has said that a rate cap on payday lending could be a "slippery slope" toward attacking other parts of the banking industry in South Dakota - a major employer in Sioux Falls.

But Hickey said he made a deliberate decision to limit his initiated measure to payday lending and not target other financial institutions that charge high interest rates.

Payday lenders have long countered those who claim the entire industry bilks consumers and overcharges. Payday lending, they say, provides a service and is less expensive than other options people with poor credit have, such as fees for overdrawing an account or writing a bad check.

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