A South Dakota lawmaker has proposed a bill he hopes the state's legislature will pass to put restrictions on short-term payday loans.
Rep. Steve Hickey, R-Sioux Falls, said payday loan industry representatives were alarmed last year by his effort that would have placed a proposed law on the statewide ballot to cap interest rates for such loans. He said he agreed to stop the ballot effort if they would cooperate to write reasonable regulations.
The compromise resulted in a bill that instead of limiting interest rates for short-term loans would impose additional state regulations and limit the size of loans based on a borrowers' ability to repay. The House Commerce and Energy Committee will hold a hearing on the measure Wednesday.
Current law puts a limit of $500 on a short-term loan or the total balances of all loans made by a lender to a customer. Hickey's bill would change that to $700, but the loan could not exceed 25 percent of the borrower's gross monthly income. The measure also would limit loan renewals or rollovers, give borrowers a chance to cancel loans within a day of making a deal, allow extended payment plans with no additional finance charge and require lenders to provide information on loans to the state Banking Commission.
Hickey said there are good and bad companies in the short-term lending industry. He said the state needs to know more about the lenders, the terms of their loans and whether people are able to repay those loans.
Hickey said if short-term lenders don't support the bill and the state legislature rejects it, he can always resume the effort to put a proposed rate cap on the ballot for a statewide vote.
Hickey worked with a few lenders to develop the proposal, including Advance America, a South Carolina-based company with offices in South Dakota and 28 other states.
Jamie Fulmer, the company's senior vice president of public affairs, said Advance America likes some parts of the bill but has reservations about other parts, according to an Associated Press report. The company's support for the bill depends on how it might be changed during the legislative process, he said. State and federal regulations must strike a balance between making sure people can get the loans they need and protecting them from making bad credit choices, Fulmer said.