South Dakota’s top banking regulator did not violate the rights of a payday lender when it ordered him to surrender his licenses, a federal appeals court ruled.
Bret Afdahl, director of the South Dakota Banking Division, was acting within his authority when he ordered the Dollar Loan Center to stop making short-term loans and to surrender its lending licenses in 2017, the Court of Appeals ruled Wednesday. of the Eighth Circuit.
The three-judge panel’s opinion overturns a federal district court decision that found Afdahl and the Banking Division had violated Dollar Loan Center’s due process rights. The appeals court concluded that the Dollar Loan Center’s claims that it received no notice that it could not issue short-term loans were “false.”
An attorney for the lender did not immediately respond to an email. In a statement, Afdahl said: “We are happy to see that the court supports the Division’s ability to protect the public.”
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The dispute followed a ballot measure approved by voters in 2016 that capped interest rates on short-term loans to 36% per year. The limit included fees. Before the ballot measure, the Dollar Loan Center issued loans ranging from $ 100 to $ 2,000 with annual percentage rates ranging from 259% to 492%. Industry critics argued that moneylenders preyed on the poor and locked them in perpetual debt.
On June 1, 2017, the division received new license applications from Dollar Loan Center for its four branches throughout the state. In those requests, the lender indicated that it did not plan to offer short-term loans. But in July, the Dollar Loan Center indicated that it would begin offering a new loan product.
After reviewing the product, the division sent a letter dated July 7, 2017 to the Dollar Loan Center expressing doubts about the legality of the new loan product. The letter notified the lender that it intended to inspect the loan portfolio.
The examination found that the Dollar Loan Center was imposing a $ 70 delinquency fee on loans that were delinquent every seven days. The loans, which ranged from $ 250 to $ 1,000, were considered short-term under South Dakota law and, with late fees, had annual percentage rates of 300% to 487%. The review found that late fees accounted for more than 90% of Dollar Loan Center’s revenue.
The review also found that the new loan portfolio had a delinquency rate of more than 50%.
After the examination, Afdahl issued a cease and desist order and revoked the Dollar Loan Center’s loan licenses. Dollar Loan Center that filed a lawsuit, arguing that the division had violated its rights by revoking the licenses without first holding a pre-deprivation hearing.
The appeals court rejected the lender’s arguments.
“In these circumstances,” wrote Judge Ralph Erickson, “where DLC was aware that the division was investigating the legality of its new loan product, DLC had the opportunity to provide additional information on the division’s concerns, and the Revocation order had no more of an effect on DLC’s business than the simultaneously issued cease and desist order, we conclude that DLC has not demonstrated a violation of due process. “