On May 29, the U.S. District Court for the District of South Dakota denied a motion to dismiss filed by the director of the South Dakota Division of Banking (defendant), ruling that the defendant exceeded his authority when he revoked a payday lender’s (plaintiff) operating license instead of initiating a cease and desist order, and that he failed to provide sufficient opportunities for the plaintiff to respond. According to the court, the defendant “had good cause to revoke [the plaintiff’s] money lending licenses,” having determined that late fees on the plaintiff’s loan product violated the 36 percent finance charge cap in the state’s 2017 payday lending law. But the court also held that the defendant committed a “procedural error” when he chose to “revoke the licenses rather than afford a hearing or [give the plaintiff] an opportunity to bring its practices into compliance. . . .”
The court further granted the plaintiff’s motion for partial summary judgment “on the violation of procedural due process” for a period from September 13 through September 28, 2017—the date that the defendant issued a limited stay on the license revocation allowing the company to collect on loans issued before the South Dakota payday lending law went into effect. “In short, [the defendant’s] Order did not meaningfully advance the interests of the state (and indeed contravened state law), and the ‘substitute procedures’ sought by [the plaintiff] (and required under state law) would have accommodated the competing interests, provided due process, and not needlessly compromised the private interests of [the plaintiff],” the court wrote.
This content originally appeared in Buckley’s Infobytes blog, a collection of news and alerts covering the financial services industry. To read more or have the Infobytes weekly newsletter delivered to your inbox, please visit infobytesblog.com.