South Dakota On The Brink of Reopening Business Lending

In November 2016, voters in South Dakota approved Initiated Measure 21, which prohibited state-licensed money lenders from making a loan that imposes total interest, fees, and charges at an all-in annual percentage rate greater than 36%. The rate cap includes all charges for ancillary products or services and any other charge or fee incidental to the extension of credit. The rate cap applies to commercial and personal loans originated after November 16, 2016. The measure, which does not apply to state and national banks, bank holding companies, other federally-insured financial institutions, or state-chartered trust companies or to businesses that provide financing for goods and services they sell, significantly inhibited the ability of commercial lenders to originate loans to businesses and merchants in the state. Now, the South Dakota Legislature is poised to re-open lending in the state.

Senate Bill 166, which the Senate and the House have approved, would exempt “business to business lending” from the reach of the 36% rate cap. “Business to business lending” is defined as a loan of more than $5,000 made to a borrower with a federal employer identification number “in furtherance of a business or commercial venture that is not for personal, family, or household use and is not secured by a nonpurchase money security interest in a motor vehicle.” Commercial lenders would still need the money broker license, however, to lend directly in the state.

Republican Governor Dennis Daugaard is expected to sign the bill, which would take effect July 1, 2017.

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