Voters in South Dakota on Tuesday overwhelmingly approved a measure to cap interest rates on payday, installment and auto title loans at 36%, while rejecting a competing amendment sponsored by a large payday lender.
With the passage of Measure 21 and the defeat of Amendment U, South Dakota becomes the 15th state to rein in predatory lending. Other states, including Michigan, are also working on measures to reign in payday lenders.
South Dakota's Measure 21 received 270,433 votes, or 76% of the vote, with 99% of precincts reporting.
The measure prohibits state-licensed money lenders from making a loan that imposes an annual percentage rate greater than 36%, which includes total interest, fees and charges. The 36% interest rate cap does not apply to traditional loans issued by banks and credit unions.
The "no" vote on Amendment U received 224,752 votes, or 63% of the vote with 99% of precincts reporting.
Amendment U would have prohibited the state legislature from setting any interest rate cap on short-term, small dollar loans. It was backed by Rod Aycox, the president of Loan Max Title Loans.
South Dakota was politically unique in uniting Democrats and Republicans against out-of-state payday lenders through a broad coalition that included consumer groups and religious leaders.
"We're thrilled," said Reynold Nesiba, a professor of economics at Augustana University who won a state Senate seat and was a backer of Measure 21. "The measure demonstrates the popularity of a 36% rate cap and we hope serve as a model for other states around the country."
South Dakota joins Arizona, Montana and Ohio that have approved interest rate caps in recent years.
Many states have modeled such rate cap measures on the Military Lending Act, which prohibits lenders from charging active-duty service members annualized interest rates above 36%.
"If anything is going to work in this country, it has to be groups like ours being able to respect each other, overlook differences and work for the common good," Nesilba said.
