The South Dakota Subprime Marketplace: Title and Payday Loans in South Dakota
South Dakota, known as the Mount Rushmore State in honor of the famous national landmark, has a total population of 869,666. Of the people who call South Dakota home, 114,071 live below the poverty line of $24,300 for a family of four. However, the state’s financial outlook isn’t all bad. In South Dakota, just 3.4% of people are unemployed, which is lower than the U.S. unemployment rate of 4.9%.
As the state’s economy continues to change, many South Dakotans may find themselves in need of money. Whether that’s to pay rent, buy groceries, or help solve a medical emergency, people with bad credit or no credit may have trouble accessing more traditional lines of financing, like credit cards and bank loans. But when an unexpected expense pops up, these people still need a way to get cash fast, and often that leaves them with one option: a short-term, high-interest loan from a payday or title lender. However, there are risks associated with these kinds of loans that could cause a lot of trouble for South Dakota families dealing with financial stress.
If you understand how payday loans and title loans work in South Dakota, you can be better educated when it comes to making a financial decision and can work to avoid falling into a cycle of endless debt. We hope this guide will help you make the right choices when your options are limited.
Payday Loans in South Dakota
Payday loans are short-term cash loans that can be taken out in exchange for a check, dated on the borrower’s next payday. The check is made out for the amount of the loan, plus the lender’s finance charge, and if you don’t pay back the loan before your loan terms are up, the lender has the right to cash that check.
As a state, South Dakota has almost 10 times more payday loan companies (126) as it does McDonald’s restaurants (29). That’s 40.01 pay lenders per 100,000 people.
Average APR: 36%
Total Number of Payday Lenders: 126
Average APR: 459%
Total Number of Payday Lenders: 180
The History of Payday Loans in South Dakota
The history of payday loans in South Dakota is important for potential borrowers to fully understand before they take out a loan that could ruin their credit and finances. South Dakota voters recently shook up the payday lending system when, in 2016, 75% of voters approved a measure to place an interest rate cap of 36% on short-term loans, called the South Dakota Payday Lending Initiative, Initiated Measure 21. This measure made charging more than 36% APR on a short-term loan a misdemeanor crime and enacted a provision that loans made without adhering to the cap rate would be voided.
This is good for subprime borrowers in the state, because it means that companies can’t charge more than 36% APR on payday loans. Before this measure was enacted, a Pew Charitable Trusts report in 2014 found that the average APR charged for a payday loan in South Dakota was 574%.
South Dakota Payday Loan Rules and Regulations
The regulations around payday loans work to help the people of South Dakota avoid getting stuck with loan payments that they can’t afford. By enacting the 36% cap, payday lending is kept from getting out of hand, and lenders are kept from taking advantage of borrowers who are desperate. In South Dakota, the maximum loan amount is $500, and there are four rollovers permitted.
The real danger of taking out a payday loan is that there is such a short period of time in which to pay back the loan; otherwise, you can face serious financial penalties. Even though the state of South Dakota is helping borrowers by capping interest rates, it is still important to be careful about taking out payday loans. If you do take out a payday loan, do everything in your power to pay it back on time. Many organizations, including the Southern Poverty Law Center, say that payday loans are used by lenders to trap borrowers into debt. If you are going to take out this type of loan, you should make sure that you are in the financial situation to pay it back during the period allotted.
- Maximum Loan Amount:$500
- Minimum Length of Loan:Not specified
- Maximum Length of Loan:Not specified
- Rollovers Permitted:4
- Finance Charge on a 14-day $100 Loan:$1.39
- APR on a 14-day $100 Loan:36%
- Maximum # of Outstanding Loans at a Time:Not specified
Title Loans in South Dakota
A title loan is a loan in which an asset, usually the title to a car, is used as collateral for the borrower to pay back the loan. If the borrower does not pay back the loan, the lender can seize the property as payment.
There are a few reasons why title loans may look appealing from the outside. The first is that the application doesn’t take the borrower’s credit rating into account. Even if your credit is shot, so long as you have a car that’s paid off, you’re likely going to be approved. Additionally, title loans can be approved very quickly and for amounts as low as $100. But these loans can be dangerous, as your personal property is at stake.
A car title loan is a specific type of loan. For a borrower to be eligible to take out this kind of loan, they must legally own the car. They sign the title over to the lending company, and the lender will give up to 25% of the car’s total value in loan form. If a borrower doesn’t repay the loan, the car can be repossessed by the loan title company.
South Dakota is one of 25 states where title loans are legal. According to a Pew Research study, more than two million Americans use title loans each year, generating approximately $3 billion in revenue for title loan companies. The study also found between 6 to 11% of people who take out an auto title loan have their vehicle repossessed each year.
The History of Title Loans in South Dakota
Since title loans are also considered short-term loans, the same regulations as payday loans guide them. Based on the 2016 measure, there is an interest rate cap of 36% on short-term loans under the South Dakota Payday Lending Initiative, Initiated Measure 21. Remember: if a lender tries to charge more than 36% on a short-term loan, it is considered a misdemeanor crime.
There are 89 title lenders in South Dakota.
South Dakota Title Loan Rules and Regulations
Title loans are legal in South Dakota. The State of South Dakota regulates title loans through Chapter 54-4-71: Money Lending Licenses.
Even though title loans seem attractive to those who have no credit or are in need of money quickly, these loans are very risky. With car title loans, 20% of those who take out a short-term, single-payment car title loan will have their cars repossessed, according to a report from the Consumer Financial Protection Bureau (CFPB). As with most short-term loans, the borrower needs to make sure that they can pay back the loan during the period given or risk paying more money than they might have easily on hand.
Additionally, loan experts say that title loans severely impact borrowers with lower incomes. Almost 12% of title loan borrowers make less than $15,000 a year, while about 18% make under $25,000. The average loan amount is $950, and borrowers end up paying, on average, around $2,140 in interest, plus additional fees every time the loan is rolled over.
South Dakota has created regulations for repossession by lenders in order to reduce the issues that may arise when lenders collect a borrower’s car. In South Dakota, lenders are NOT required to notify you when they come to repossess your vehicle after you miss a payment. However, they are required to mail you a notice stating how you can retrieve your vehicle.
You should know your rights as to the actions that the lenders can take to collect on a loan that has not been paid. For example, repossession agents can’t enter your home without your permission. They cannot use violence in any form. They also cannot mislead you or trick you into giving them your vehicle.
If you haven’t paid your loan and your car gets repossessed, can you get your vehicle back? The answer in South Dakota is yes, but with restrictions.
Even though the rates on title loans are regulated in South Dakota, these loans are still a dangerous option for borrowers. It is important to understand your rights as a borrower and make sure that the lenders that you are borrowing from are adhering to state law. If you don’t completely understand the terms of your loan and pay it back in a timely manner, you could face the loss of your property and that’s not a good situation for anyone to be in.
- Loan Term:1 month
- Rollovers Permitted?:Yes. South Dakota calls them renewals and up to 8 are allowed
- Fees and Finance Charges:Upon the fifth renewal of a title loan, and through the eighth renewal, the debtor shall make payment of at least ten percent of the original principal amount of the title loan, in addition to any finance charges that are due
- Maximum APR:36%
- Average APR:36%
- Repayment Plan:After the eighth renewal the title loan is due in full and no further finance charges or fees may accrue or be earned
Regulating Payday and Title Loans in South Dakota
With the regulations around loan rates, South Dakota residents are in a much better situation than residents of other states that also allow both payday and title loans.
How to Report a Predatory Lender in South Dakota
If you or someone you know falls victim to a predatory lender, report it to the South Dakota Division of Banking. By speaking up, you can help your family, neighbors, and friends stay clear of situations like this in the future!
South Dakota Division of Banking
- Address: 1601 N. Harrison Ave., Suite 1 Pierre, SD 57501
- Phone: (605) 773-3421
- Fax: (866) 326-7504
- Website: http://dlr.sd.gov/banking/
Consumer Protection in South Dakota
Luckily for the residents of South Dakota, the vote and passage of the regulation that determined that rates need to be capped at 36% helped them become more protected against predatory lenders. Previously, high-cost, small-dollar loans could have an APR in excess of 300%, with payday loans averaging 574% APR. That meant that millions of dollars of money from residents of South Dakota were getting paid in loan fees. Now with this measure, out-of-control lending fees are a thing of the past.
However, it is important to remember that even though these loans have a cap, they are still fairly risky endeavors, and borrowers should be careful.
Guides to Payday and Title Loans in South Dakota Cities
Payday and title loans are a big issue for South Dakota residents. And it gets even more complicated at the city level. Check out these payday and title loan guides to the following cities in South Dakota:
Rapid City | Sioux Falls | Watertown
- “South Dakota Payday Lending Initiative, Initiated Measure 21 (2016).” Ballotpedia, www.ballotpedia.org/South_Dakota_Payday_Lending_Initiative,_Initiated_Measure_21_(2016).
- “South Dakota Voters Approve Interest Rate Cap on Payday Loans.” KSFY – Content – News, www.ksfy.com/content/news/South-Dakota-voters-approve-interest-rate-cap-on-payday-loans-400489561.html.
- Sneve, Joe. “Dollar Loan Center Shut down by South Dakota Banking Authority Again.”Argus Leader, Argus Leader, 14 Sept. 2017, www.argusleader.com/story/news/city/2017/09/13/south-dakota-banking-authority-shuts-down-dollar-loan-center-again-sioux-falls-rapid-city/664404001/.
- Barry, Elizabeth. “Payday Loans in South Dakota.” Finder US, 4 Dec. 2017, www.finder.com/payday-loans/south-dakota.
- “Easy Money, Impossible Debt: How Predatory Lending Traps Alabama’s Poor.” Southern Poverty Law Center, www.splcenter.org/20130227/easy-money-impossible-debt-how-predatory-lending-traps-alabama%E2%80%99s-poor.
- Staff, Investopedia. “Title Loan.” Investopedia, 20 Jan. 2009, www.investopedia.com/terms/t/titleloan.asp.
- “Auto Title Loans Riskier Than Payday Loans, New Report Says.” NBCNews.com, NBCUniversal News Group, 25 Mar. 2015, www.nbcnews.com/business/consumer/auto-title-loans-worse-payday-loans-new-report-says-n330056.
- “North Dakota Payday Loan Law and Legislation.” UStatesLoans.org, www.ustatesloans.org/state-nd.html.
- Jean Ann Fox and Tom Feltner, Consumer Federation of America Delvin Davis and Uriah King, Center for Responsible Lending. “Driven to Disaster: Car-Title Lending and Its Impact on Consumers.” Center for Responsible Lending, doi:http://www.responsiblelending.org/other-consumer-loans/car-title-loans/research-analysis/CRL-Car-Title-Report-FINAL.pdf.
- SDLRC – Codified Law 54-4-71, sdlegislature.gov/Statutes/Codified_Laws/DisplayStatute.aspx?Type=Statute&Statute=54-4-71.
- “Why Car Title Loans Are Illegal in Some States – Should They Be Illegal in All of Them?”DriveSafely.net, www.drive-safely.net/why-car-title-loans-are-illegal-in-some-states/.
- “Resolution on Predatory Lending in South Dakota .” Bear Butte Conference, Crossroads Conference, Hunger Task Force, doi:http://sdsynod.org/wp-content/uploads/2015/05/3-Resolution-on-Predatory-Lending-in-South-Dakota-.pdf.