March 10, 2006
The Charlotte Observer
BINYAMIN APPELBAUM

CLOVER, S.C. - If you drive south from Gastonia, this is the first place in South Carolina. And lately, a lot of people are driving south in search of payday loans.

Clover, population 4,054, had two payday stores in 2004. Two more opened last year. And at least two more companies say they are looking for locations.

As North Carolina expels the last of its payday lenders, Clover surely ranks high on the list of unintended consequences. Payday lending is exploding here and elsewhere along the south side of the state line.

There are now 50 payday stores in York and Lancaster counties, up from 40 in 2004.

Fort Mill's first payday store opened last year.

On Cherry Road in Rock Hill, there are now 10 payday lending stores in the first 1.3 miles after a southbound driver exits Interstate 77 -- all along the right side of the road.

Several lenders in York County said most of their business now comes from North Carolina. Jack Flynn, who owns a payday store on the main street in Clover, put the figure at 95 percent.

He plans to open two more stores along the state line this spring.

What does Flynn think about North Carolina's attack on his industry? "I want to send a thank you note," he said.

Payday lending grew up in the last decade, part of an explosion of financial products for people with lower incomes or credit problems. These loans are easier to get than banks loans, but much more expensive.

S.C. law allows payday lenders to charge 15 cents for every dollar borrowed, with loans due in as little as two weeks. That's an annualized interest rate of 391 percent.

The industry says it makes loans to people who need money for occasional emergencies. The loans are available to anyone with a job and a checking account, no questions asked.

Consumer advocates and N.C. regulators compare the loans to a narcotic -- not just bad, but also hard to escape. The Center for Responsible Lending in Durham, a leading critic, says the vast majority of payday loans go to people who already have an outstanding loan.

"I'm embarrassed for our state," said Sue Berkowitz, director of the S.C. Appleseed Legal Justice Center in Columbia, which advocates for the poor. "We're not only finding a way to prey upon our own citizens but we're finding a way to prey upon citizens across the border."

Moving south

Flynn operated a payday lending store in Gastonia until 2001. When a law allowing payday lending expired, Flynn moved the business to Clover.He also moved his home, and replaced six Gastonia employees with six Clover residents. And he started advertising his new location on television and in the Gaston County Yellow Pages.

"CA$H FAST -- `Where everyday is payday.' "

Other payday lenders kept operating in North Carolina, selling loans made by banks based in other states. But in December, the N.C. Commissioner of Banks ruled such loans were still illegal, and the last lenders agreed to close by Saturday.

Georgia imposed its own ban in 2004. There are now 36 states with laws allowing payday lending, and 14 that don't allow it, mostly in the Northeast.

As the industry wound down in North Carolina and Georgia, it was picking up steam in South Carolina. The number of payday stores increased 14 percent last year, state records show.

There are now about 1,100 stores in South Carolina. In the 12 months ending August 2004, they collected more than $150 million in fees on almost 4.4 million loans -- more loans than the number of people who live in the state.

By all accounts, many of those loans go to N.C. residents.

"Our preference would be to operate stores in North Carolina, regulated by the state," said Jamie Fulmer, a spokesman for Advance America, Cash Advance Centers Inc., the nation's largest payday lender. "People still have a need for short-term money."

The company, based in Spartanburg, closed its N.C. stores in September. The following month, it opened two new stores in Rock Hill, doubling its total in the city to four stores.

There are now more Advance America stores in Rock Hill than in Charleston, which has about twice as many residents.

Tamara, who declined to give her last name, drove to Rock Hill from Charlotte on a recent Monday, a 30-mile one-way trip. It was her first time borrowing from a payday store. She said it was an emergency.

A co-worker told her she could find a lender in Rock Hill.

She wrote a check for $345. The teller slipped $300 in cash through a slot in the bulletproof window, then handed Tamara a card with a reminder of the loan's due date in two weeks, when the check would be cashed.

Like many people who use payday stores, Tamara believed simultaneously that she was being ripped off, and that the lender was offering an important service she couldn't get anywhere else.

"It makes sense that it's not legal, but sometimes when you're having a financial crisis ..." She trailed off, then started again. "It's ripping people off, but sometimes you've got to come down here and do it."

Loopholes in S.C. law

South Carolina passed a law regulating payday lending in 1998, as companies such as Advance America were beginning to make the industry a major retail sector. There are now more than six times as many payday stores in South Carolina as McDonald's restaurants.

In Florida, which also allows payday lending, state law restricts borrowers to a single outstanding loan at any time. The law prevents people from taking a new loan to repay an existing loan. It aims to limit the use of payday loans, so people do not become trapped in debt.

But South Carolina's law only limits borrowers to a single outstanding loan from any particular lender. As a result, consumer advocates say many people simply alternate between two lenders, taking a new loan every two weeks to repay their existing loan.

In some cases, borrowers may shuttle between stores owned by the same lender. In Rock Hill, at least three companies each operate two stores along Cherry Road.

Consumer advocates seeking to change the law say they have found little support in the S.C. legislature. They blame the influence of Advance America.

The company has become one of the largest public companies in the state. It employs several hundred people statewide and is a major political donor. The company was co-founded by a former S.C. legislator and a former aide to President Clinton. The State newspaper reported S.C. Gov. Mark Sanford used a company jet to travel to Seattle for a conference in 2004.

Asked for comment, a company spokesman said, "We feel comfortable operating under existing state law." He declined to say whether the company preferred the S.C. law to the Florida law.

The state senator who represents Rock Hill, Republican Wes Hayes, said it may be time to revisit the law. "I would think that Florida is on the right track," Hayes said. "I think that's something we're going to have to look at."