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Dollar Loan Center of South Dakota, LLC v. State, Department of Labor and Regulation, Division of Banking

Supreme Court of South Dakota

November 14, 2018

DOLLAR LOAN CENTER OF SOUTH DAKOTA, LLC, Appellant,
v.
STATE OF SOUTH DAKOTA, DEPARTMENT OF LABOR AND REGULATION, DIVISION OF BANKING, Appellee.

          ARGUED ON OCTOBER 1, 2018

          APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT HUGHES COUNTY, SOUTH DAKOTA THE HONORABLE PATRICIA J. DEVANEY Judge

          ZACHARY W. PETERSON JACK H. HIEB Richardson, Wyly, Wise, Sauck & Hieb, LLP Aberdeen, South Dakota Attorneys for appellant.

          MARTY J. JACKLEY Attorney General PAUL E. BACHAND EDWARD S. HRUSKA, III Special Assistant Attorneys General Pierre, South Dakota Attorneys for appellee.

          ZINTER, Justice[1]

         [¶1.] The South Dakota Department of Labor and Regulation, Division of Banking (Division) issued a cease and desist and license revocation order directing the immediate revocation of the money lender licenses of Dollar Loan Center of South Dakota, LLC. While a hearing before the Office of Hearing Examiners was pending on the matter, Dollar Loan appealed the Division's order to circuit court. The circuit court dismissed the appeal, concluding there was no statutory right to appeal the order and Dollar Loan had failed to exhaust available administrative remedies. We affirm.

         Facts and Procedural History

         [¶2.] In 2017, South Dakota voters approved an initiated measure (Initiated Measure 21) making it illegal for money lenders licensed under SDCL chapter 54-4 to issue loans that impose finance charges exceeding 36% "including all charges for any ancillary product or service and any other charge or fee incident to the extension of credit." SDCL 54-4-44. The loans covered by the new law included short-term payday loans, which are defined in SDCL 54-4-36(15).

         [¶3.] After the new law went into effect, Dollar Loan informed the Division it intended to start using a new loan product that would not exceed the 36% rate. Dollar Loan provided the Division a copy of the new loan contract. The contract disclosed that the new loans would be unsecured and would require full payment of principal and interest upon maturity. The loans would also require late fees if the full payment was not received upon the due date, and the failure to pay the full loan amount on the due date would cause the loan to be in default. Every seven days after default, Dollar Loan would charge an additional late fee and continue to do so until the loan, all accrued interest, and late fees were paid in full.

         [¶4.] Almost immediately after Dollar Loan started making the new loans, the Division gave notice of intent to conduct an examination. On July 13, 2017, the Division reviewed Sioux Falls and Rapid City loans at Dollar Loan's Sioux Falls office. After the first examination, the Division asked follow-up questions. The Division then conducted a more thorough examination at Dollar Loan's Sioux Falls office.

         [¶5.] As a result of the examinations, Division Director Bret Afdahl executed a cease and desist and license revocation order on September 13, 2017. The order was based on findings of fact and conclusions of law. The order found the new loans were unsecured and ranged in principal amounts from $250 to $1, 000. It further found the new loans matured in seven days and required full payment of principal and interest upon maturity. The order indicated Dollar Loan had "neither applied for nor received authorization from the Division to originate or service 'short term consumer loans.'" The order also found that the actual interest rate, after considering the late fees, ranged between 300% and 487%, which in the Division's view indicated Dollar Loan's new product was designed to incur late fees.

         [¶6.] Based on these findings, the order concluded Dollar Loan originated and serviced "short term consumer loans" for which it was not licensed. It further concluded the loans were "a device, subterfuge, or pretense to evade the requirements of SDCL 54-4-44." Citing SDCL 54-4-49, the Division found "good cause to immediately revoke [Dollar Loan's] money lender licenses[.]"

         [¶7.] Accordingly, the order revoked Dollar Loan's money lender licenses. The order also declared void and uncollectable any loan originated by Dollar Loan after June 21, 2017. Dollar Loan was directed to immediately cease engaging in the business of lending money in South Dakota and to immediately surrender all South Dakota money lending licenses to the Division. However, the order indicated it would "remain in effect unless set aside, limited, or suspended by the Division or upon court order after review under South Dakota law." It also expressly provided that any person aggrieved could request a hearing before the South Dakota Banking Commission. Dollar Loan did not request a hearing on the matter.

         [¶8.] On September 21, 2017, Dollar Loan filed suit in federal court against Afdahl in his individual capacity under 42 U.S.C. § 1983. Dollar Loan alleged Afdahl violated its right to due process when he revoked its money ...


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