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S.C. must rein in payday lenders before they run over state's consumers

March 23, 2006 - Columbia, South Carolina

South Carolina is in danger of being overrun by payday lenders seeking to squeeze vulnerable consumers, many of whom are already in financial jams, for every possible dollar.

The lenders already have a stronghold in the state -- the nation's largest payday lender, Advance America, is based in Spartanburg. And now that North Carolina and Georgia have wisely forced the lenders out of their midst, more and more are heading for the friendly confines of South Carolina, where regulations are lax and financially struggling people are plentiful.

Yes, as usual, the Tarheel and Peach states are ahead of South Carolina when it comes to protecting consumers from unscrupulous lenders. Those states preceded South Carolina in passing predatory mortgage lending laws as well. Fortunately, South Carolina's lawmakers did wise up and pass a strong anti-predatory lending law, which is helping consumers get better loans.

Now it's time for S.C. lawmakers to do the right thing when it comes to payday lending. I'd just as soon see it outlawed. Short of that, regulations need to be tightened to protect borrowers.

Our laws allow lenders to make obscene profits by luring people into a cycle of debt. ĘThe lenders are allowed to charge 15 percent on a loan, which equates to 391 percent annually. The loans can't be more than $300.

It's good to hear that some lawmakers are beginning to show concern. Some are considering limiting borrowers to one payday loan at any given time. As it is, S.C. law only limits borrowers to one outstanding loan per lender. That leads to many borrowers drifting back and forth between lenders. They get a new loan every couple of weeks to repay an existing one. In Florida, borrowers are limited to one outstanding loan; they can't take out a new loan to repay an existing one.

Rep. James Smith, D-Richland, who is working with consumer advocates to write a bill, said he hopes enough support can be mustered to get meaningful change in South Carolina.

While it shouldn't be this way, chances are it will be next year at the earliest before anything happens, if at all. These lenders play hardball and rarely yield to anything that might slow down their gravy train. This is an election year, and payday lenders have a lot of sway with politicians. They have strong lobbying arms and are big-time players when it comes to helping finance campaigns. They say it's not to curry favor, but it's undeniable that helping fund campaigns gives them access others -- particularly consumer advocates, who don't have deep pockets -- don't get.

I commend Rep. Smith and others for recognizing the need to rein in these short-term, high-interest loans. They should consider going beyond just limiting the number of loans. Among other things, consumer advocates have proposed a 24-hour cooling-off period between the time a loan is paid off and a new one is taken out, as well as the establishment of a real-time database to track payday loans.

Perhaps the growing number of payday lenders flowing into the state will catch some lawmakers' attention. Supposedly, state leaders are focused on raising the per capita income in our state. In the meantime, you'd think they would discourage lending practices that drain many people's limited resources and throw them deeper into debt.

Things are going to get worse before they get better. South Carolina is now sandwiched between two states that have declared they won't allow payday lenders to prey on their consumers any more. North Carolina banned payday lending in 2001. Some lenders were able to stick around because they issued the loans through banks, a practice the N.C. Banking Commissioner declared illegal in December. Advance America has closed 117 offices in that state. And, recently, the last three major payday lenders in North Carolina agreed to close. Georgia banned payday lending in 2004.

Earlier this month, Binyamin Appelbaum of The Charlotte Observer wrote a story chronicling payday lenders' mad dash for South Carolina from North Carolina. Consider these sad tidbits:

  • The small town of Clover, which had two payday stores in 2004, had two more open last year. At least two more companies are considering moving there.
  • The number of payday stores in York and Lancaster counties has grown from 40 in 2004 to 50.
  • In one 1.3-mile stretch of Cherry Road in Rock Hill, there are 10 payday locations.
  • There are more Advance America locations in Rock Hill than in Charleston, which has almost double the population.
  • The number of S.C. payday stores grew by 14 percent last year. Locations in the border counties of York and Lancaster grew by 25 percent. There are now about 1,100 of them in our state. In the 12 months ending August 2004, payday lenders collected more than $150 million in fees on almost 4.4 million loans.

Payday lending is about to go to another level in the Palmetto State. State lawmakers must rein it in now and protect our citizens from these legalized loan sharks.

News Source

The State, Editorial by Warren Bolton, Associate Editor

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