“What happens to these people is they turn to online lenders and then they get into more trouble,” Olson said. “There’s really no way to regulate those [online] companies on a consistent basis.”
The lack of oversight of online lenders is a national issue of concern for consumer advocates. More than a erica published a report called, “Internet Payday Lending: How high-priced lenders use the internet to mine borrowers in debt and evade state consumer protections.”
One big problem is that online payday lenders legally gain access to borrower bank and credit union accounts, and can make deductions without explanation.
“Payday loans made online combine the negative aspects of storefront payday loans … with the additional problems of jurisdictional and applicable law, security and privacy risks,” the report concluded. ”
Afdahl said the state banking division tries to watch out for unscrupulous online lenders and occasionally hears from residents who are concerned about the validity of online companies.
Unlike the former storefront payday lending sites, where regulators could pay a visit to a lender and look at their books, online lenders are hard to regulate because they are often based in other states, countries or on sovereign tribal lands, Afdahl said.
“There’s thousands of those things, so it’s kind of the whack-a-mole deal,” Afdahl said. “There’s no way to put a gate up at the state line that says you need to get our license here before you make a loan in South Dakota. The location and sheer volume of online lenders makes it difficult for South Dakota to monitor the industry, even to be sure they are licensed to do business in the state, which is required and makes them subject to state laws including IM 21.
Furthermore, the report states, “Internet payday lenders bypass state usury laws and consumer protections by locating in lax regulatory states and making loans without complying with licensing requirements or state protections in the borrower’s home state
“Could people be borrowing money from companies that are not licensed to do business in South Dakota? I would say yes,” Afdahl said. “But to what extent, we just have no way to know that.”
During debate over IM21 passed, backers of the initiative raised about $25,000 in private money and contracted with Grow South Dakota to administer a loan fund that could help people obtain small emergency loans.
Initially, Olson said, credit unions saw a slight uptick in customers who came in seeking cash to settle loans with payday lenders who were about to close and had called in all debts
The loans, up to $1,000, can be used for car repairs, to pay off an existing high-interest loan, or to satisfy a legal judgment or garnishment, said Lori Finnesand, CEO of the nonprofit finance agency located in Sisseton.
But for whatever reason, interest in the loan pool has been minimal, she said. To obtain a loan, potential borrowers must fill out paperwork and agree to undergo a credit counseling session with an agency near where they live.
“Actually, we haven’t made any loans,” Finnesand said. “We have had a few inquiries, but not a lot, not as many as we anticipated.”
The immediate impact may have been most visible in Sioux Falls, where local businessman turned national lending magnate Chuck Brennan not only closed 11 of his Dollar Loan Center stores, but also put his massive pawn shop and motor speedway up for sale. Dollar Loan Centers in other South Dakota cities also packed up shop and vanished; Brennan continues to operate his businesses in several other states from his Las Vegas headquarters.
“Those were rare things, but those were the squeaky wheels who made the whole thing go down,” Tschetter said. “They blamed someone else for their problem; if those payday loan places weren’t around, I wouldn’t have this problem.”
Credit union officials offered financial counseling as part of their interaction with those clients, but most did not become credit union members, he said.
