April 2, 1980

Ms. Helen Wegner 
Secretary 
Department of Commerce 
State Capitol 
Pierre, South Dakota 57501

Official Opinion No. 80-24

Allowable Interest Charges Under House Bill 1046

Dear Ms. Wegner:

You have requested an official opinion from this office in regard to the following questions:

QUESTIONS: 

1.  Does House Bill 1046 effectively supersede the provisions of any usury law or any other law of this state limiting or regulating the rate or amount of interest, fees, finance charges, service charges, credit service charges, or any other charges which may be charged, taken, received, agreed to or reserved, or the method of computation of any thereof, by a 'regulated lender' as that term is defined in Section 1 of House Bill 1046?  As a consequence of House Bill 1046, is a bank authorized to enter into revolving loan account arrangements which provide for a rate of interest or credit service charge in excess of that otherwise provided in SDCL 51-24 and any method of calculation thereof and for the imposition of any other fees or charges, all as may be set forth in the contracts governing such arrangements? 

2.  An out-of-state individual wishes to finance houses in South Dakota.  Can that individual legally collect more than 12 percent interest? 

3.  What notice does a merchant have to give to charge account customers to implement the 1 2/3 percent per month rate? 

4.  How much interest can a bank charge on the registered warrants of a city, county or school?

IN RE QUESTION NO. 1:

It is the opinion of this office that House Bill 1046 supersedes the provisions of any usury law or any other law of this state limiting or regulating the rate or amount of interest, fees, finance charges, service charges, credit service charges, or any other charges which may be charged, taken, received, agreed to or reserved, or the method of computation of any thereof, with respect to any loan or other extension of credit by a 'regulated lender' as that term is defined in Section 1 of House Bill 1046.

A bank is authorized to enter into revolving loan account arrangements which provide for a rate of interest or credit service charge in excess of that otherwise provided in SDCL 51-24 and any method of calculation thereof and for the imposition of any other fees or charges, all as may be set forth in the contracts governing such arrangments.

IN RE QUESTION NO. 2:

The answer to your second question is no.  Non-regulated lenders are not included in the exemption of House Bill 1046 and are still limited to the existing usury rates.  An individual unless he or she is within the definition  of a regulated lender is limited to 12 percent.

IN RE QUESTION NO. 3:

A merchant must give revolving credit customers notice pursuant to the federal Truth in Lending Act, Regulation Z (see Official Opinion 79-10 for a detailed discussion of the notice provisions of Regulation Z).

The interest charged on an open account is a matter of contract.  The merchant must by the usual methods enter into a binding contract with the purchaser for the payment of the interest rate. Due to the numerous options and methods of contracting for forbearance on accounts owed by customers to merchants, an all-inclusive answer is impossible.

IN RE QUESTION NO. 4:

Cities, counties, and schools are limited to an amount of interest not to exceed 6 percent per annum on warrants.  SDCL 9‑23-12 (cities);  SDCL 7-22-10 (counties); and SDCL 13-18-9 (schools) limit the powers of these governmental units to pay interest on warrants.  The recent legislation does not affect the foregoing statutes.

Respectfully submitted,

Mark V. Meierhenry
Attorney General