Lame Excuses from South Dakota, the Loan Shark Capital of the World

December 17, 2009

No excusesBy Terry Smiljanich:

After Consumer Warning Network helped expose how South Dakota politicians are in the banking industry’s back pocket, the bankers and politicians responded.  As we reported, South Dakota legislators led the way in giving banks the opening to charge loan shark interest rates. So, are they ashamed for their role in this travesty of justice? Apparently not.

When the Argus Leader, the leading newspaper in Sioux Falls, South Dakota, wrote a story about the CWN article, the reporter asked its state politicians for a comment. Did they argue that rates as high as 36% are fair and equitable? Did they argue that South Dakota was not a prime cause for such high nationwide rates? Not exactly.

“But Mommy, Everyone Else Is Doing It”

Well first, they argued it’s not just us. Other states have high rates too, pointing to Delaware and Nevada. Sorry, guys, you really need to get your facts straight.

Delaware actually has one of the more strict usury and interest cap laws on the books, capping interest rates on personal loans at 5% over the Federal Reserve prime rate, which currently stands at 0.25%.

Nevada did do away with usury penalties, going against thousands of years of legal precedence, but still maintains a cap on personal loans of 12%.  So, no, everyone else is not doing it.  It is indeed because of South Dakota that consumers in Delaware and Nevada and across the country have to pay rates as high as 36%!

Besides, are South Dakota politicians proud of the fact that after leading the way in doing away with usury laws, “others are now doing it too?” Good argument, right? “But Mom, all my friends are doing it. Why can’t I?” It didn’t work when you were a kid, and it doesn’t work as an excuse now, either.

“Let the Market Decide”

South Dakota State Senator Scott Heidepriem argued that “the marketplace is there to sort it out,” which is clearly better than just setting “some arbitrary rate.” That argument would be funny if it weren’t so sad and out of touch with reality.

Let’s look at this “marketplace.” Does Senator Heidepriem, a gubernatorial candidate, imagine for a moment that consumers sit down at their kitchen table with Bank of America and “negotiate” an interest rate based on prevailing market conditions? Everyone knows that “agreements” with credit card companies are on a flat “take it or leave it” basis. The companies advertise a seemingly low “teaser” rate on their cards, and bury the real interest and future interest hikes deep within the extremely fine print “agreement,” if you can even find a copy.

Don’t like our rates? Just go somewhere else, right? Wrong. Take a look around. Every major credit card company is charging historically high interest rates, and the consumer is faced with no other options. That doesn’t sound like a “marketplace,” does it Senator Heidepriem? Thanks to your state, the floodgates have been opened for banks to charge whatever they can get away with. The entire history of usury is rolling over in the grave that South Dakota so conveniently dug for its banker friends.

“Risks Drive Interest Rates”

The Director of banking for South Dakota, Roger Novotny, is unconcerned about his state’s lack of any regulation over interest rates on consumer loans. In a silly attempt to divert attention from his state’s complicity in rampant corporate greed, Novotny points out that Consumer Warning Network is based in Florida, “one of the centers of the sub-prime mortgage mess.” What does that have to do with what South Dakota politicians did? I guess if we were based in Philadelphia he would have said: “Who cares? They lost the World Series. Didn’t they?”

According to Novotny “risk drives interest rates.” Actually, credit card companies don’t seem to be too concerned about risk. They hand out credit cards like candy with little or no underwriting of the risk. Since they can charge such high interest rates, they can make up for the deadbeats by charging everyone else higher rates than are reasonably justified.

Mr. Novotny, who was a senior vice president at a Wells Fargo affiliate before becoming South Dakota’s chief banking regulator, is proud of South Dakota’s status as a great friend of the banking industry.

Isn’t that how it always goes? The fox guarding the hen house.

Your Turn

If you’re a consumer sick of getting squeezed by big lenders making lots of money on your back, write those South Dakota Legislators to let them know what you think.  And while you’re at it, you might want to copy a letter to your Representative and your Senators, as well.