For 15 years, South Dakota residents who needed a small amount of money in a hurry could turn to storefront lenders who made so-called payday loans at annual interest rates that could rise well over 500 percent.
The industry thrived, and payday lending businesses that made loans on a weekly or monthly basis popped up by the dozens across the state.
But in late 2016, after a heated campaign that highlighted how some borrowers got trapped in a cycle of paying excessive interest and fees, South Dakota voters overwhelmingly approved a measure limiting the annual interest rate on short-term loans to 36 percent.
The new rate was a deadly blow to the industry. When the 36 percent annual rate is applied to loans made only for a week or a month, it made payday loans unprofitable.
As a result, just 15 months later, the payday industry in South Dakota is nearly extinct. But where have the borrowers gone?
Some have turned to pawn shops to get money quickly. A few have visited credit unions or financial counseling services. But experts believe that many borrowers have turned to the internet and are using online lenders that consumer advocates and South Dakota’s top banking officer say are less regulated and more prone to fraud. Read more here.