April 27, 2006
The State.com: South Carolina's Home Page
 
Many South Carolina workers, among the poorest in the nation, are being lured into multiple short-term, high-interest loans that amount to financial bondage.

As they struggle from paycheck to paycheck, they often fall prey to payday lenders, who market their service as a quick and easy way to get cash for emergencies such as car repairs. The result in far too many cases is consumers getting locked into a vicious cycle of debt.

State lawmakers shouldn't allow this fleecing of South Carolina to continue. If they are not going to ban payday lending, they should at least heavily regulate it.

Our state already has about 1,100 payday loan locations that make more loans in a year than there are people in our state of about 4 million.

The nation's largest payday lender, Advance America, is based in Spartanburg. The industry's presence is growing as lenders in North Carolina and Georgia flee here because those states have banned them. For example, the number of payday stores in York and Lancaster counties has grown from 40 in 2004 to 50.

Add to that the fact that South Carolina's lax law does little to protect borrowers, and we've got a major problem brewing. Our law allows such lenders to make gaudy profits by luring people into recurring debt. The lenders are allowed to charge 15 percent on a loan, which equates to 391 percent annually. The loans can't be more than $300. The law only limits borrowers to a single outstanding loan from any particular lender at one time. As a result, consumer advocates say, many people alternate between two lenders, taking a new loan every two weeks to repay an existing one.

Payday lenders have little use for one-time borrowers. Repeat customers are the marks. A study released in 2004 by the Center for Responsible Lending, in Durham, N.C., found repeat borrowers account for 91 percent of payday lenders' revenue. The study also found those who borrow from payday lenders receive, on average, eight to 13 loans a year from a single source.

It's been difficult for consumer advocates to get lawmakers to address this issue. The deep-pocketed lenders have droves of lobbyists, give freely to campaigns and wield significant influence with legislators.

Fortunately, some lawmakers, such as Rep. James Smith, D-Richland, have teamed with consumer advocates, such as AARP South Carolina, S.C. Appleseed Legal Justice Center and S.C. Fair Share, to consider changing state law. They're considering limiting borrowers to one payday loan at any given time.

But that's not enough. Lawmakers also should consider other ideas consumer advocates have touted, such as 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.

A proviso proposed in the Senate would create a legislative committee to study short-term consumer loans, including payday and title loans, to determine whether additional laws are needed. That could shine much-needed light on this problem. But lawmakers must not allow the process to be used to bury this issue.

While it's the responsibility of consumers to beware and be careful about doing business with these lenders, the Legislature must do its part by instituting laws that prohibit sharks from taking advantage of borrowers.