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Tschetter also rejects the notion that payday customers were getting quick cash for illicit purposes

Tschetter also rejects the notion that payday customers were getting quick cash for illicit purposes

Some lenders self-regulated

Tschetter regrets the loss of his payday loan business, but he also feels bad for the 200 or so clients who occasionally took out a loan to get by or survive a financial emergency.

“I have no shame in what I do, and I’m not trying to rip anyone off,” he said. “I was really helping people to help themselves, because you can’t get a $100 loan or $500 loan when you have bad credit or even when you have good credit.”

“There’s a million hard-luck stories, and they’re kind of sad sometimes,” he said. “It’s that they need baby food, to pay a utility bill to not have their water cut off, or get a car repaired.”

To limit defaults on payday loans, Tschetter said he self-regulated in that he performed pre-loan background checks and never loaned anyone more than 15 percent of their net monthly income. Borrowers were also required to have an active bank account as proof that they had local ties and were stable enough to make required payments.

The state of South Dakota does not provide a way for lenders to check on how many loans potential customers already have outstanding or how much they owe other lenders.

At 36 percent APR, payday lenders say the loans were no longer profitable. The problem is that when that annual rate is applied to a short-term loan, there’s almost no way to cover the costs of running a business and covering losses due to defaults, according to Tschetter.

For example, a $100 payday loan on a 1-week term brought in $10 in interest prior to the initiative. But after the rate limits took effect, that same $100 loan for a week would only bring in 75 cents in interest.

“There’s no way it’s worth it to anyone to make those loans,” he said. “Plus, you just can’t go to a bank or credit union and get a $100 loan for $10. Even for me, with an 800 credit rating, it’s just impossible.”

Where did borrowers go?

Former payday loan customers are hard to find or won’t speak on the record due to embarrassment or privacy concerns.

Some credit counselors think borrowers simply migrated to one of the many online lending agencies that pop up on any Google search for “payday loans.”

Even before IM21 passed, credit counselors were hearing from people who had taken out payday loans online, according to Sheri Eckdom, director of the Consumer Credit Counseling Service run by Lutheran Social Services in Sioux Falls.

Eckdom said people who came to her agency for help might have a payday loan, but that typically a short-term loan would be a part of a larger set of financial challenges.

“Sometimes we would hear from clients that were grateful for the payday loan because it helped fix the situation in the short term,” she said. “What we don’t know if it was a good thing in the long term.”

Moving from a storefront to online payday lending carriers its own set of heightened risks, said Jeff Olson, CEO of the Credit Union Association of the Dakotas, which represents 75 credit unions in North Dakota and South Dakota that serve more than 500,000 customers.

Despite claims by backers of IM21 that borrowers could eschew payday loans and instead turn to banks or credit unions for small cash loans, Olson said credit unions in South Dakota did not see an influx of borrowers after the measure took effect. “They haven’t come knocking on the door of credit unions for small loans,” he said.

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