David Montgomery

dmontgome@argusleader.com

An unexpected coalition is backing a campaign to ban payday lending in South Dakota, prompting the industry to warn of far-reaching consequences if it succeeds.

Payday loans and an array of similar businesses — "signature loans," "title loans" and others — target small-dollar loans at people with poor credit and savings. Supporters say they help low-income people borrow much-needed money, but an array of critics say the fees are far too high and trap borrowers in a spiral of debt.

The face of those critics in South Dakota is state Rep. Steve Hickey, whose attempt to pass more regulation of payday loans earlier this year was defeated by opposition from the industry. Now he's going for a more dramatic step: effectively banning payday lending in South Dakota.

"They can tell us all that this is just about helping people, but it's an intentionally crafted defective financial product that is marketed to the financially unsophisticated," said Hickey, a Sioux Falls Republican. "They're bilking billions of dollars out of poor neighborhoods, and the taxpayers get to clean up the mess. I want to get them out of the middle, and let society help these people in other ways."

Payday lenders say that's not what their industry is about. They say payday lending serves a need and is less expensive than other options people with poor credit have, such as fees for overdrawing an account or writing a bad check.

"Overwhelmingly, the customers who take out loans from our company do so responsibly and to their satisfaction," said Jamie Fulmer, an executive with lender Advance America. "While consumer advocacy folks have a negative opinion of the products and services we offer, the actual customer doesn't. That too often gets lost in the debate."

Hickey is not persuaded. His solution: asking South Dakota voters to pass an initiated measure setting an annual interest rate cap of 36 percent for payday-style loans.

Poll: Should South Dakota discourage payday lending?

Both sides agree that would shut down payday lending in South Dakota. Because payday-style loans have short durations, a fee of $15 for a $100 loan can result in annualized interest rates of hundreds or thousands of percent. (Payday loan companies say that's not a fair comparison because of the short-term nature of the loans.)

"If the 36 percent interest cap ever were to go through ... the whole industry in South Dakota is simply out of business the next day, including us," said Chuck Brennan, founder of the Dollar Loan Center chain.

That's fine with Hickey. And he's not alone. A coalition of nonprofit groups and activists are working together with Hickey on his campaign, which will start circulating petitions next year.

Some of the members of the coalition are unusual allies. None is more so than Hickey's co-leader: Democratic political operative Steve Hildebrand.

Hickey is a pastor who has drawn national attention for comments criticizing same-sex marriage and homosexuality. Hildebrand, a former Tom Daschle and Barack Obama aide, is openly gay and was offended by Hickey's remarks.

But when the two sat down for coffee to talk over their disagreements, they discovered a lot of things they agreed on. At the top of the list: shared opposition to payday lending.

Even while Hickey and Hildebrand are preparing to try to ban payday lending in South Dakota, the state Banking Commission is proposing new regulations of the industry. The draft bill would give the state more leeway to deny or suspend a payday lender's license.

It's unclear whether payday lenders will support or oppose this regulation. Fulmer insisted Advance America supports "reasonable" regulation of payday lending. This past year, both Advance America and the Division of Banking opposed Hickey's proposed reforms. That defeat in a legislative committee led him to try the rate cap.

Hickey said the Banking Commission's reform bill is relatively minor and won't derail or preempt his rate cap.

If that rate cap passes, payday lenders say the consequences for South Dakota will be dire. It starts with their stores shutting down and their employees being laid off.

"Vendors who provide services would be impacted. Landlords who rely on the rent payments would be impacted," Fulmer said. "Customers who have chosen to use our products and services ... would be disenfranchised. They would be forced to turn in many cases to higher-cost options, in many cases to less regulated options."

Brennan warned that a rate cap on payday lending could be a "slippery slope" toward attacking other parts of the banking industry in South Dakota — a major employer in Sioux Falls. Hickey said he made a deliberate decision to limit his initiated measure to payday lending and not target other financial institutions that charge high interest rates.

In addition to his stores, Brennan said he'd close down Dollar Loan Center's corporate office in Sioux Falls, too — as well as other business and charitable ventures he runs here not directly related to payday lending.

That includes "Chuck's Kegger," a new summer rock-and-roll festival starting next year in Sioux Falls. When he announced Chuck's Kegger this week, Brennan said he'd made a long-term commitment to the festival — but would change in a heartbeat if voters approve a rate cap in 2016.

"The event would end there," Brennan said. "If it isn't for the money coming in from Dollar Loan Center, there aren't these big concerts and donations. We donate every penny we get from the state of South Dakota."

Hickey said he's not concerned.

"We will survive one less rib/keg-fest," Hickey said. "I care a lot more that that money is coming from people who can't afford chicken on their table at night. If he wants to say he's going to pull his big party away from here, I'm sorry."