I’m a bit stumped at the mixed messages being given.
If you recall, Initiated Measure 21, which was passed at the ballot box this past year, severely limited personal lending in South Dakota by placing express interest limits on short-term and other personal lending, by capping the lending rate at 36% for most entities that weren’t regularly chartered banks.
Who was exempt from IM 22?
- State and national banks
- Bank holding companies
- Other federally insured financial institutions
- State chartered trust companies
- Businesses that provide financing for goods and services that they sell
In my opinion, Initiated Measure 21 was a regulatory overreach, by telling the short-term lenders that they could no longer make a profit sufficient enough to cover their risk. In effect, regulating them out of the business.
Now, a new type of banking measure, House Bill 1179 has been bouncing around in the legislature. What does this measure do? It allows certain types of mortgage lending without a license from the state. Specifically, it is “An Act to revise certain provisions related to exemptions from licensure for nonresidential mortgage loans.” The measure allows a person to lend up to 8 million dollars total, exempting them from licensure, oversight, taxation, etcetera.
In other words, this new class of elite lenders get to do what they want. It made it through the House of Representatives with so-so support, and barely passed out of the Senate, making it out of committee with “No Recommendation.”
It’s coming to the finish line. But, when you put it up against IM21, there’s not a lot of consistency.
On one hand, Initiated Measure 21 puts onerous restrictions on the smallest types of personal loans. So much so that it put them out of business. But, if you have enough money, HB1179 proposes to allow a person to loan out up to 8 Million of it without oversight or regulation.
One approach is contrary to free market principles, and the other ignores the fact that in a year the state is going to have a revenue shortfall, they look as if they may exempt a class of money lenders from taxation, as well as licensure.
Instead of legislatively creating the haves and have nots, if they’re going to de-regulate banking, they should consider relaxing state regulations on established state banks, holding companies, trusts, and others as opposed to creating a caste of elite “lending clubs” not subject to regulation or taxation.
Over-regulating lending, or creating a class of lenders we don’t regulate or ask to pay their fair share of taxes at all.
Maybe there’s a happy medium in there somewhere.
What gives out there? Very disappointing
So you can’t loan someone $100 without the state telling you how much interest to charge.
But you can go ahead loan them $8 million and that is none of anyone’s business?
Is Rounds behind this? I can’t believe Daugaard is. He voted for more regulation. Michels?
This is just an example of people not asking themselves some very basic questions before reacting and forming a position.
1) Who gets $8mm non residential MORTGAGE loans? People who own large buildings (office and manufacturing) or own a lot of loans. Because of their asset size, they qualify as sophisticated borrowers so virtually no consumer protection laws apply to them so what are you going to regulate?
2) Who makes single purpose $8mm non-residential MORTGAGE loans? People who have a lot of money. Because of their asset size, they qualify as sophisticated/accredited investors so virtually no investor protection laws apply to them so what are you going to regulate?
So, with those realities, what compelling state interest is there in having these lenders be licensed or regulated except suffering from the disease of nanny-statism.
OOPS: “own a lot of land”
Methinks this is intended for Farm Credit System. Land Bank has been cherry-picking high end rural mortgages for years and their quasi-public, quasi-private, total-bullshit status doesn’t quite match up with the IM 21 definitions of who’s exempt from 21.
This is the Rapid City legislation for some wealthy clients of Lust’s firm. Move along, nothing to see here.
It’s pretty simple. If you are going to lend money up to the amounts proposed in HB1179, then obtain a license and pay your share of applicable tax. That’s not too much to ask for a business that could earn up to $800,000+ annually in interest income.
You do realize SD doesn’t have an income tax don’t you?
Again, a lot of people babbling about issues they know nothing about.
You do realize that SD does have a bank franchise tax (a/k/a an income tax) that is indeed applicable.
The 36% rate cap is a protection against the exploitation of the poor by selling an intentionally defective financial product intended to be a debt trap. This bill has nothing to do with that and if it did we would have come out against it. In my conversations with Rep Lust about this bill last month he reported it has to do with mezzanine financing which occurs throughout our state. Google it, as I had too myself. Troy is right about people babbling about issues they know little about. I know very little about mezzanine financing except that the poor are not exploited by it.
Rich people can get loans with no strings attached, but nobody wants to give a working man a short-term loan.
Just another nanny state liberal Obama do-gooder.
Sheesh, if an entity is subject to the bank franchise tax, this bill does not apply to them.
Steve Hickey’s comment is correct. This bill is only applies to sophisticated lenders making loans to sophisticated borrowers. If we want the nanny state licensing and regulating every such transaction, you might as well end any illusion this is a capitalist economy and anyone who opposes this is not friendly to the free-enterprise system but basically a closet socialist.
Troy: you might want to think about that one again in regards to bank franchise tax.