Monday, January 31, 2011

South Dakota: bad loans are the norm and go unexamined

And by "bad loan" I don't mean one that isn't repaid. I mean a bad financial instrument.

"Pay Day" loans are short term advances, not requiring collateral (although there are also "Title Loans" by which folks can borrow by signing over their car or other property). Pay Day loans, in particular, have horrific interest rates and, in South Dakota, a "four time rollover" provision that allows the lender to extend the repayment period to the point that the borrower ultimately pays way more than the original loan principle and interest combined.

When I Googled "pay day loans south dakota," the first two and a half pages of listings were advertisements for Pay Day lenders. It wasn't until the third page that I ran into this:

South Dakota Payday Loan Laws | Debt Consolidation Payday Loans, which begins:

"South Dakota is one of those very few states that have made almost no attempts to restrict the predatory nature of short-term cash advances that are issued as payday loans."

The general defense of these loans is that they create small businesses. But South Dakotans recently took the risk of cutting into bar & casino profits by banning smoking in most establishments. There is no reason that an inherently bad financial business couldn't be regulated to protect consumers, who would inevitably spend the money sucked up by usury in other sectors of the economy.


caheidelberger said...

On that risk you mention at the end: we've seen video lottery revenue go down, but eating and drinking establishments have so far seen monthly increases in revenue compared with the previous year. Sometimes the noise about endangering business is just noise. Shut down payday lenders, and the good entrepreneurs will find less harmful ways to make a buck and serve customers.

TLF+ said...

Good point from Madville!

Is it the case that the state revenues from internet gambling in the bars are down?

Payday loans, internet gambling - it is a sorry thing to see the state attempting to defend/depend upon these kinds of enterprises, which instill bad financial habits, harm individuals and families financially and emotionally, and are hardly to "values" sorts of things to which we often hear appeal.