South Dakota Payday Loan Firm Loses State Supreme Court Appeal
Inside Subprime: Dec 6, 2018
By Grace Austin
A Midwestern payday loan firm has lost another legal battle to stay in business, after a ruling from the South Dakota Supreme Court in mid-November. The payday loan firm has been involved in an ongoing dispute playing out in the South Dakota courts over illegally high interest rates on its loan products.
In the latest blow, the top court in the state unanimously upheld a lower circuit ruling that the payday loan firm didn’t use all of its administrative outlets after the South Dakota Division of Banking revoked its license in September 2017.
Voters in South Dakota passed a ballot measure in 2016 to cap payday loan and title loan interest. (Other states have also passed legislation against payday and title loan interest, including, most recently, Colorado in November’s election.) Payday loans in South Dakota are now limited to 36 percent APR. Before Initiated Measure 21 went into law, a Pew Charitable Trusts report found that the average APR charged for a payday loan in South Dakota was almost 600 percent.
The measure also capped the loan amount to $500 and limited the number of times a loan can be renewed to four. A majority of voters supported it.
After that initiative passed, the payday loan firm started offering a new loan in July 2017 marketed as a “signature loan.” The new loans charged between 300 and 487 percent with fees included and had a 7-day maturity. The South Dakota Division of Banking said the payday loan firm’s new loan product was still charging over the legal limit when it factored in fees, and issued a cease and desist to the payday lender.
As the South Dakota Supreme Court outlined in its opinion released to the public, while a hearing before the Office of Hearing Examiners was being scheduled, the payday loan firm appealed the Division of Banking’s license revocation to a state circuit court. A circuit court judge dismissed the payday loan firm’s appeal, saying they first had to go through the examiner review.
The South Dakota Supreme Court heard the case in early October. The payday loan firm’s attorney argued it was unconstitutional for the Banking Division to revoke the lending license without a proper hearing. But the state argued that the business didn’t properly exhaust all administrative remedies.
After voters approved the ballot measure in 2016, the payday loan firm closed its locations, but reopened several stores in 2017. According to its website, the payday loan firm has shut down all of its South Dakota locations. It’s now operating payday loan storefronts in Utah and Nevada, as well as online in California.