Christmas is coming, and the payday lending industry in Rapid City can no doubt expect a very, merry holiday season.
South Dakota is one of five states that has no usury laws, ever since our legislature did away with them in 1980 to attract banks and credit card companies to the state.
It worked. South Dakota, with its 448 banks, now has the highest number of banks per capita in the U.S. Or maybe it didn’t work. With 175 payday lending operations (which also includes title loan companies, rent to own and pawn shops), we have the second highest per capita density of payday lenders in the country.
Payday lenders historically target low-income people, women, minorities and the military. While perfectly legal in this state, some of its lending practices, which can include short-term interest rates as high as 800 percent, seem predatory to us.
People who wouldn’t dream of taking out a car loan with a 50 percent interest rate routinely take out short-term cash advance and payday loans with interest rates that can range from 200 percent to 500 percent.
According to the 2005 Predatory Lending in the Military study, Rapid City, with its proximity to Ellsworth AFB and its growing Native American population, is particularly vulnerable to the payday industry. Pennington County has just 12 percent of the state’s population, but it contains almost one quarter of its payday lending operations. Pennington County had more than 40 payday lenders in 2005, double the statewide rate of 23 per 100,000 people.
People who fail to understand the economics behind these small loans with their short repayment periods and high fees inevitably pay a high price they can ill afford. Short term financial solutions often turn into long-term debt, especially during the holidays when emotions and finances make for a volatile mix.
According to the Center for Responsible Lending, 90 percent of the payday industry’s customers are people who have taken out five or more such loans per year. That means 90 percent of the people taking out these short term loans find out they cannot repay the loan and need to borrow again and again.
That’s a vicious cycle that often puts people further in debt. It destroys families, increases bankruptcies and weakens communities.
We suffer no illusions that politicians will reinstitute usury laws in this state, but we do hope that lawmakers will revisit the most predatory practices of payday lending and find ways to prevent the industry from preying on the poor, young and financially uneducated consumers that it too often targets.
Source:
http://www.rapidcityjournal.com/
