Cash Advance Store Owners can Remain Secret in South Dakota Ruling

In recent years, the cash advance industry has faced mounting criticism from a wide range of opponents. President Obama and Hillary Clinton have both gone on record as supporting stringent new regulations for the industry. State legislators, celebrities and debt-relief agencies have also spoken out against lenders who offer cash advances or payday loans. In June 2016, the Consumer Financial Protection Bureau released its proposed regulations for lenders offering short-term loans. In an atmosphere in which official criticism of these short-term lenders is running rampant, many people were surprised to learn of a recent South Dakota ruling that allows the owners of cash advance stores to remain secret.

Identities of Cash Advance Owners Can Remain Secret, According to South Dakota Ruling

In 2015, the Argus Leader, a daily newspaper based in Sioux Falls and South Dakota’s largest paper, requested that the South Dakota Division of Banking release the applications filed by owners of payday loan businesses. The paper’s request was denied. The basis for the denial was that the applications were not public records. Furthermore, the director of the state’s bank division stated that releasing the applications was not in the public interest and that the information could be used to harm individuals or banks.

The Argus Leader promptly appealed the decision to the South Dakota Office of Hearing Examiners. In June 2016, Catherine Duenwald, the hearing examiner for the case, ruled that the applications requested by the newspaper were not public records. In addition to supporting the decision made by the South Dakota Division of Banking, Duenwald agreed that releasing the records would not be in the public interest.

What Information Did the Newspaper Want to Obtain?

In South Dakota, cash advance operators are classified as money lenders. They must file a seven-page application with the South Dakota Department of Labor and Regulation’s banking division. The application requires substantial personal information, including:

• Full name, mailing address, phone number and email address of a contact person
• Full name, mailing address, phone number and email address of employee authorized to respond to complaints from consumers
• If incorporated, full legal name and title of every C-level executive and the full name of every shareholder owning more than 10 percent of the voting stock
• For partnerships, trusts and limited liability companies, full legal name of every individual who has contributed more than 10 percent of the capital
• If sole proprietorship, the Social Security Number of the owner
• Resume for each person listed as responsible for the conduct of business
• Financial statements for each individual listed as having more than a 10-percent interest in the company

In addition, the application asks whether the consumer or any individual listed as a control person has been charged with a felony of any type during the last 10 years or been charged with a misdemeanor involving moral turpitude or dishonesty. It also asks whether the consumer or a control person has filed for bankruptcy in the last 10 years and whether the consumer has any unsatisfied liens or judgments.

Is the South Dakota Ruling a Case of Much Ado About Nothing?

The Dakota Free Press disagrees with the state’s refusal to release the applications. Cory Heidelberger’s opinion piece refers to payday lenders as “loan sharking” outfits and argues that even his ownership of his house and land is public information. He ends his piece with the assertion that consumers have a right to know with whom they are doing business.

To a high degree, that information is already available online. The South Dakota Division of Banking publishes a list of money lenders licensed to conduct business in the state. The current list includes such recognizable names as ACE Cash Express, Advance America and Check into Cash. If the company operates under a different name, that name is also listed. Whether the company is a domestic or foreign corporation, the names of officers are not particularly difficult to find. The same is true for partnerships and limited liability companies.

What is not readily available is some of the personal information contained on the application. In this era of ever-increasing identity theft, should South Dakota release applications that may contain a proprietor’s Social Security Number? If a consumer filed for personal bankruptcy less than 10 years ago, should that information be made public? Perhaps these situations are the type that Duenwald meant when she mentioned that releasing the information could harm individuals.

Given the amount of personal information contained in the applications, it appears that South Dakota has made the correct ruling. This is especially true when you consider the state’s transparency regarding licensees. With a little effort, it would not be particularly difficult to learn the names of the principal owners of a cash advance store from the list of licensed money lenders that the state already provides. This allows interested parties to identify owners and executives, but it allows shareholders and employees to retain their privacy and limits the type of personal information that could be used for identity theft.

What Is Next for the Cash Advance Industry?

Over the coming months, there will be some changes for lenders who make short-term, small-dollar loans. At the moment, it is impossible to predict the specific changes for every state or every type of lender. If you would like to stay informed about cash advances, visit us at the Personal Money Store.