The owner of one Rapid City payday lending store said voters didn’t understand the ramifications of a measure overwhelmingly approved in the Nov. 8 general election that capped interest rates charged by payday, auto loan and installment loan companies at 36 percent annually.
And he said predictions that the measure may kill the short-term payday loan industry in South Dakota — which makes emergency loans to those in need of quick cash — are already coming true as he stopped making loans Tuesday.
“I think the people in the state got duped, thinking that all these high-interest lenders were screwing everybody, and they’re going to make them have a cheaper rate,” said Rob Tschetter, owner of Cash With Us on East North Street in Rapid City.
Proponents of Initiated Measure 21, which went into effect Wednesday, said interest rates charged by short-term lenders exceeding 500 percent annually were hurting those living in poverty.
But opponents of the measure unsuccessfully countered that high annual interest rates amounted to nominal fees for a short-term loan of a few hundred dollars taken for a few weeks, and the far-lower 36 percent annual rate would make it impossible for lenders to stay in business. They argue that many people living on a thin margin need the loans to keep their overall finances and families afloat.
“The cheaper rate takes them out of business. It shuts everybody down,” Tschetter said.
For Tschetter, that prognostication has come true. On Tuesday, he said Cash With Us would close its doors at the end of the business day.
“Today is our last day of being open, period,” said Tschetter in a telephone interview on Tuesday. “You can’t sustain a business on a 36 percent annual percentage rate.”
On Wednesday evening, he said Cash With Us was continuing to accept payments on outstanding loans and cashing checks but had stopped making new loans as of Tuesday.
Tschetter, who also owns a pawn shop, Pawn With Us, next door along with a smaller pawn shop on north Haines Avenue, said a 521 percent annual percentage rate on interest is misleading when calculated on a short-term loan.
As an example, Tschetter said a $100 loan for 30 days at Cash With Us cost the borrower $25.
“If you look at the annual rate on that $25, it’s crazy, way high," he said. "But if you look at the reality, you cannot go anywhere and get a $100 loan for $25. You can’t go to a bank, especially if you don’t have a checking account."
He said Cash With Us typically saw two or three people coming through the doors per day, taking out a total of about $500 to $800 in loans. Interest payments made on that amount were enough to pay the salary of a secretary and the cost of advertising, he said.
Under the new 36 percent annual limit, a $100 loan for 30 days would cost $3, he said.
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“You just can’t sustain a business on that,” he said.
At least two major payday lending chains in South Dakota with more than 20 stores between them also have stopped offering new loans to customers with the interest rate cap approved by voters that took effect Wednesday.
Dollar Loan Center, which has 10 locations in South Dakota, splashed a post across a page on its website, dontbebroke.com, urging its customers to contact state officials and the media to help overturn the rate cap voters overwhelmingly passed on Election Day.
The company's offices will stay open to service existing customers but won't originate new loans, founder Chuck Brennan said. Top payday lending chain Advance America is following the same template.
"Advance America centers in South Dakota remain open but have ceased offering new loans as we explore our options," said Jamie Fulmer, senior vice president of public affairs at the company, which has nearly a dozen locations in South Dakota.
Lenders predicted during the ballot measure campaign that the initiative would end the industry in South Dakota. Foes said that the rate cap would prevent lenders from recouping the costs of providing loans.
That's how a recent rate cap initiative played out in neighboring Montana. State figures show regulated short-term lenders plummeted from more than 100 to none within several years of its 2010 approval.
The South Dakota law, which received nearly 76 percent support, limits interest rates charged by businesses such as payday, auto title and installment lenders to 36 percent annually.
"The consequences are tremendous in South Dakota," Brennan said. "A lot of people rely on short-term loan companies."
The company said in its online post that it will continue lending money if the measure is overturned.
Tschetter said he expects more incidents of bounced checks, or an increase in the number of people pawning personal items to obtain short-term cash.
“There’s just a lot of people living paycheck to paycheck. It’s just a fact of life,” he said.
"I saw this as a humongous help to the people," he said of the short-term loan industry. "I'm sad about it."
The Associated Press contributed to this report.