Interest Rate Cap Initiative Gets Nat’l Press: Hickey Calls Payday Loans “Defective… Deceptive”

The pending drive to cap interest rates in South Dakota and rein in predatory payday lenders gets some national press this week with a hefty article in The Atlantic. Sean McElwee’s article opens with the usual hook—the odd couple of conservative pastor and state legislator Steve Hickey and openly gay Obama campaigner turned restaurateur Steve Hildebrand—then turns to the nitty gritty of usury in South Dakota:

South Dakota has one of the most aggressive payday lending industries in the country. Lenders there charge an average annual rate of interest of 574 percent. In practical terms, if residents of South Dakota borrow $300 to make ends meet, five months later they will owe $660. South Dakota is one of seven states, along with Nevada, Utah, Idaho, Delaware, Texas, and Wisconsin, that do not cap payday-lending rates [Sean McElwee, “The Odd Couple Fighting Against Predatory Payday Lending,” The Atlantic, 2015.03.19].

Governor Bill Janklow made us the usury capital in 1980 when he pushed to eliminate that rate cap and recruit Citibank to Sioux Falls. Augustana economics professor Reynold Nesiba captures the predatory results in one vivid metaphor for our out-state readers:

The result, as Nesiba points out, is a nominally free market in loans that offers few protections for borrowers: “One does not need to be a South Dakota fisherman to understand that freedom for the northern pike in the Missouri River is not freedom for the minnow” [McElwee, 2015.03.19].

Rep. Rev. Hickey explains why he wants to correct this market error:

Hickey, who has helped members of his congregation trapped in the cycle of payday-lending debt, grew frustrated watching people get rich off of exploitation. “I’ve given away thousands of dollars to pay the lenders off,” he said. One payday-loan mogul, Chuck Brennan recently purchased a $9 million second house in Newport Beach. “Good for him,” Hickey said. “I don’t mind people making money, but I feel like I partially funded that by paying the people who owe him.” He also noted that payday lenders often exploit those who are relying on government assistance, leaving taxpayers to foot the bill. “It’s an intentionally defective financial product that is deceptively marketed to the unsophisticated who are barely holding on at the margins of our society,” he said [McElwee, 2015.03.19].

Watch for Steve Hickey and Steve Hildebrand to come to your door with petitions to sign. When they do, help the minnows, spike the pike, and back that rate cap!