South Dakota Buy-Here-Pay-Here (BHPH) White Paper
Here’s a focused white paper you can put straight into your ops binder. It’s specific to South Dakota and to a buy–fix–finance (BHPH) model. I’ve included plain-English explanations, the governing statutes/regulators, and working money examples with exact amortization math.
You acquire low-cost vehicles, perform essential reconditioning, retail them at a fixed price, and carry the paper (retail installment contract). Revenue comes from:
Operational pillars:
If you’re regularly selling vehicles, you need a South Dakota motor vehicle dealer license (new or used). Requirements include application, surety bond, liability insurance, and compliance with zoning/land-use at your business location. (South Dakota Department of Revenue)
Typical dealer compliance items
South Dakota’s Money Lending Licenses are in SDCL ch. 54-4. After IM-21 (36% cap) and HB 1090 (2017), installment sales contracts were clarified/excluded from the “loan” rate-cap regime; they are generally governed under the Consumer Installment Sales law instead of the 36% cap for loans. (South Dakota Legislature)
Crucially, the Division of Banking notes an exemption from money-lender licensing for “any person selling goods or services and providing financing for such goods or services.” In other words, a retail seller who finances its own car sales does not need a money-lender license under 54-4. (You still must comply with consumer-credit and installment-sales rules.) Verify your exact structure with counsel, but this is the state regulator’s own guidance. (SD Labor and Regulation)
Consumer installment sales terms/charges are addressed in South Dakota Title 54 (credit/consumer finance)—see 54-3A for installment-sales constructs and terminology. Your retail installment contract and disclosures should align with this chapter and federal TILA. (South Dakota Legislature)
For consumer purchasers (not business buyers), TILA applies: disclose APR, amount financed, finance charge, total of payments, payment schedule, late fees, and any prepayment policy. The South Dakota Attorney General has emphasized TILA’s consumer scope; business-purpose sales are outside TILA. Use standard, plain-English, conspicuous TILA boxes on your retail installment contract. (atg.sd.gov)
Best practice
Perfect your security interest by being listed as lienholder on the title at sale. South Dakota runs an electronic lien/titling system (ELT); procedures are in Title 32 (motor vehicles). Track SD’s electronic lien filing provisions (e.g., §32-3-70 et seq.) and use the DMV processes in the state Motor Vehicle Procedures Manual for deal jacket checklists (IDs, lien, taxes/fees). (Justia Law)
If a consumer defaults, you can self-help repossess without breach of the peace. South Dakota statutes also provide cooperation pathways with law enforcement for repossession businesses (e.g., §32-3-72). Use a professional agent; follow notice, cure/reinstatement, and sale/deficiency processes exactly as your contract and law require. (South Dakota Legislature)
Dealer liability minimums and the bond amount are part of the SD dealer licensing framework (see above). (ACV Auctions)
Translation: You generally don’t need a money-lender license if you (the seller) finance your own cars, and the 36% LOAN cap is not the controlling limit for your installment sales—but your disclosures and practices must still pass consumer-protection scrutiny. Confirm final structure with a South Dakota consumer-finance attorney.
Assumptions
Numbers:
Numbers:
Numbers:
In South Dakota, a dealer-as-seller can typically finance its own retail sales without a separate money-lender license under 54-4 (per regulator guidance), provided you use retail installment contracts, handle TILA consumer disclosures, perfect your lien, and follow dealer and collections laws precisely. The profit is real—front-end gross + back-end interest—but only if your paperwork, underwriting, and service/collections discipline are tight. (SD Labor and Regulation)
Here’s a focused white paper you can put straight into your ops binder. It’s specific to South Dakota and to a buy–fix–finance (BHPH) model. I’ve included plain-English explanations, the governing statutes/regulators, and working money examples with exact amortization math.
South Dakota Buy-Here-Pay-Here (BHPH) White Paper
1) Business Model Overview
You acquire low-cost vehicles, perform essential reconditioning, retail them at a fixed price, and carry the paper (retail installment contract). Revenue comes from:
- Front-end gross (retail price – vehicle cost basis)
- Back-end finance income (interest under the retail installment contract)
Operational pillars:
- Proper dealer licensure & bonding
- Correct contract form (TILA disclosures to consumers)
- Perfection of lien on title
- Collections & lawful repossession
- Insurance (dealer liability + garage + repo/contingent)
2) Licenses, Registrations, and Bonds (South Dakota)
2.1 Motor Vehicle Dealer License
If you’re regularly selling vehicles, you need a South Dakota motor vehicle dealer license (new or used). Requirements include application, surety bond, liability insurance, and compliance with zoning/land-use at your business location. (South Dakota Department of Revenue)
Typical dealer compliance items
- Bond (commonly $25,000 for new/used dealers)
- Public liability insurance (industry guidance notes $300,000 combined single limit)
- Proof your site meets zoning/building codes, plus the state’s application/fees. (South Dakota Department of Revenue)
2.2 Money Lender / “Retail Installment” Licensing
South Dakota’s Money Lending Licenses are in SDCL ch. 54-4. After IM-21 (36% cap) and HB 1090 (2017), installment sales contracts were clarified/excluded from the “loan” rate-cap regime; they are generally governed under the Consumer Installment Sales law instead of the 36% cap for loans. (South Dakota Legislature)
Crucially, the Division of Banking notes an exemption from money-lender licensing for “any person selling goods or services and providing financing for such goods or services.” In other words, a retail seller who finances its own car sales does not need a money-lender license under 54-4. (You still must comply with consumer-credit and installment-sales rules.) Verify your exact structure with counsel, but this is the state regulator’s own guidance. (SD Labor and Regulation)
Practical point: Structure deals as retail installment sales (you, as the dealer, are the seller-creditor) rather than as a separate “loan” product, to remain within the seller-financing framework.
2.3 Installment Sales Framework
Consumer installment sales terms/charges are addressed in South Dakota Title 54 (credit/consumer finance)—see 54-3A for installment-sales constructs and terminology. Your retail installment contract and disclosures should align with this chapter and federal TILA. (South Dakota Legislature)
3) Federal Truth in Lending Act (TILA) & Disclosures
For consumer purchasers (not business buyers), TILA applies: disclose APR, amount financed, finance charge, total of payments, payment schedule, late fees, and any prepayment policy. The South Dakota Attorney General has emphasized TILA’s consumer scope; business-purpose sales are outside TILA. Use standard, plain-English, conspicuous TILA boxes on your retail installment contract. (atg.sd.gov)
Best practice
- Use a proven BHPH retail installment template that’s TILA-compliant and state-compliant.
- Disclose any add-ons (service contracts, GAP) clearly and keep them optional to avoid UDAAP risk.
4) Lien Perfection, E-Lien, and Title
Perfect your security interest by being listed as lienholder on the title at sale. South Dakota runs an electronic lien/titling system (ELT); procedures are in Title 32 (motor vehicles). Track SD’s electronic lien filing provisions (e.g., §32-3-70 et seq.) and use the DMV processes in the state Motor Vehicle Procedures Manual for deal jacket checklists (IDs, lien, taxes/fees). (Justia Law)
5) Collections & Lawful Repossession (South Dakota)
If a consumer defaults, you can self-help repossess without breach of the peace. South Dakota statutes also provide cooperation pathways with law enforcement for repossession businesses (e.g., §32-3-72). Use a professional agent; follow notice, cure/reinstatement, and sale/deficiency processes exactly as your contract and law require. (South Dakota Legislature)
Avoid generic web “repo” summaries; rely on your contract and SD statutes. (Online summaries vary—treat them as illustrative, not authoritative.) (Repo Buzz)
6) Insurance Stack
- Dealer Garage Liability (on-lot, demo plates, premises/operations)
- Inventory/Dealer’s Open Lot (physical damage)
- Errors & Omissions for paperwork/odometer/TILA slipups
- Repo/contingent liability if you or your agent repossess
- Surety bond as required by the dealer license
Dealer liability minimums and the bond amount are part of the SD dealer licensing framework (see above). (ACV Auctions)
7) Interest-Rate Landscape (HB 1090 Context)
- Loans made by money-lender licensees are capped at 36% APR (SDCL 54-4-44) with “all-in” calculations. (South Dakota Legislature)
- Installment sales contracts (what you use as the retail seller) were excluded from that loan cap by HB 1090 (2017) and related agency guidance, but remain regulated under installment-sales and UDAP standards. Price/terms must be fair, disclosed, and not unconscionable. (SD Labor and Regulation)
Translation: You generally don’t need a money-lender license if you (the seller) finance your own cars, and the 36% LOAN cap is not the controlling limit for your installment sales—but your disclosures and practices must still pass consumer-protection scrutiny. Confirm final structure with a South Dakota consumer-finance attorney.
8) Compliance Checklist (What to Implement Day 1)
- Entity & Site
- LLC + EIN + bank account; business location that meets zoning. (South Dakota Department of Revenue)
- Dealer License Package
- Application, $25k bond, liability insurance, fees, signage, records. (South Dakota Department of Revenue)
- Deal Jacket
- Buyer’s order, TILA box, retail installment contract, odometer disclosure, title app, ELT lien, privacy notice, optional add-ons with separate accept/decline. (South Dakota Department of Revenue)
- Payment System
- Ledger, receivables aging, SMS reminders, grace-period policy, late fee rules (must match contract).
- Collections & Repo SOP
- Non-payment workflow, cure letters, repo assignment, post-repo notice of sale, auction policy, deficiency calc/practice in line with statute/contract. (South Dakota Legislature)
- Audit & Training
- Monthly file audits; staff trained on “no UDAP” and “no breach of peace.”
9) Money Examples (Front-End, Immediate Cash, Back-End Interest)
Assumptions
- Cost basis = purchase + reconditioning (parts/labor you actually expend)
- Front-end gross = retail price − cost basis (recognized at sale)
- Immediate cash = down payment (cash in hand Day 1)
- Back-end finance income = interest paid over time
(Amortization uses standard fixed-payment math; interest is higher in early months and declines.)
Example A (starter deal)
- Buy: $1,000
- Recondition: $600
- Cost basis: $1,600
- Retail Price: $4,500
- Down Payment: $500
- Amount Financed: $4,000
- Term: 18 months
- APR: 24%
Numbers:
- Front-end gross: $4,500 − $1,600 = $2,900
- Immediate cash (Day 1): $500 (down)
- Monthly payment: $266.81
- Total interest over term: $802.55
- Average interest per month: ~$44.59
- First-month interest portion: ~$80.00
(Computed via standard amortization.)
Example B (mid-tier)
- Cost basis: Buy $1,700 + Recon $800 = $2,500
- Retail Price: $4,995
- Down: $700 → Finance $4,295
- Term: 24 months
- APR: 30%
Numbers:
- Front-end gross: $4,995 − $2,500 = $2,495
- Immediate cash: $700
- Monthly payment: $240.15
- Total interest: $1,468.49
- Average interest/month: ~$61.19
- First-month interest: ~$107.37
Example C (fast-pay)
- Cost basis: $1,400
- Retail Price: $3,995
- Down: $300 → Finance $3,695
- Term: 12 months
- APR: 21%
Numbers:
- Front-end gross: $3,995 − $1,400 = $2,595
- Immediate cash: $300
- Monthly payment: $344.06
- Total interest: $433.66
- Average interest/month: ~$36.14
- First-month interest: ~$64.66
Interpreting the profits
- Day-one: you pocket the down payment and book front-end gross (for accounting, match to GAAP/Tax rules).
- Cashflow: your monthly payment blends principal + interest; your interest income is highest in early months.
- Portfolio effect: as you add more notes, recurring cashflow smooths into a predictable weekly/monthly stream.
10) Risk Controls That Keep You Alive
- Underwriting basics: proof of income, residence stability, references, GPS/disable device with consent.
- Repair standards: brakes/tires/fluids essential; sell road-safe cars to reduce charge-offs and reputation damage.
- Receivables policy: strict but fair; offer short reinstatement options after default if statute/contract allows.
- Documentation discipline: if it’s not in the file, it didn’t happen.
- UDAP lens: prices must be defensible; disclosures must be crystal clear.
11) Quick Legal Map (You’ll cite these in SOPs)
- Dealer licensing & requirements: SD Dept. of Revenue (Motor Vehicle) pages and dealer manual (applications, bonds, insurance, zoning). (South Dakota Department of Revenue)
- Money lending vs. seller financing: SDCL 54-4 (36% loan cap), Division of Banking memo on HB 1090 (installment sales carve-out); Division of Banking web guidance noting seller-financing exemption from 54-4 licensure. (South Dakota Legislature)
- Installment sales framework: SDCL 54-3A (definitions/charges). (South Dakota Legislature)
- TILA applicability: SD AG discussion re: consumer scope. (atg.sd.gov)
- Title & lien: SD Title 32 (electronic lien filing, title procedures). (Justia Law)
- Repossession: SDCL 32-3-72 cooperation with law enforcement; use counsel-reviewed repo language in your contract. (South Dakota Legislature)
12) Recommended Documents (Ready-to-Build)
- Retail Installment Contract (SD + TILA compliant)
- Buyer’s Guide + “As-Is/Limited Warranty” form
- Privacy policy + E-sign consent (if applicable)
- GPS/Starter-interrupt disclosure & consent
- Right-to-cure and default notices (counsel-reviewed)
- Repo assignment & post-sale deficiency templates
- SOPs: Deal Jacket Checklist, Payment/Collections Script, Repo Playbook
Bottom Line
In South Dakota, a dealer-as-seller can typically finance its own retail sales without a separate money-lender license under 54-4 (per regulator guidance), provided you use retail installment contracts, handle TILA consumer disclosures, perfect your lien, and follow dealer and collections laws precisely. The profit is real—front-end gross + back-end interest—but only if your paperwork, underwriting, and service/collections discipline are tight. (SD Labor and Regulation)
