January 19, 2007
The Charlotte Observer
Binyamin Appelbaum

A bill filed this week in the South Carolina House would cap interest rates on payday loans and impose other restrictions on the controversial industry.

The bill is modeled on federal legislation passed last year that caps at 36 percent the interest charges on payday loans to members of the U.S. armed forces.

Payday lending has grown rapidly in South Carolina. Companies made more than 4.1 million loans in 2005, up 57 percent from 2000, state statistics show. That was roughly one loan for each resident.

S.C. law now allows payday lenders to charge 15 cents for every dollar borrowed. On a two-week loan, that's an annualized rate of 391 percent. The maximum loan is $300, so the maximum two-week fee is $45.

The industry says it is meeting people's occasional need for short-term cash. But critics say many people borrow once to meet an emergency, then keep borrowing because they cannot repay the debt.

The S.C. bill, introduced by Alan Clemmons, R-North Myrtle Beach, would cap interest charges at an annualized rate of 36 percent, or about $4 on that $300, two-week loan -- plus a flat $5 fee.

"If it's good enough for the soldiers, it's good enough for South Carolina consumers," Clemmons said.

The bill also would prevent businesses from making a second loan to a customer who has yet to repay an initial loan.

That would still stop short of the bans on payday lending imposed by North Carolina and Georgia, among other states.

Clemmons said he was concerned that an outright ban would drive people to borrow from unregulated lenders.

But a spokesman for South Carolina's largest payday lender said the 36 percent cap would force it to stop lending. Advance America, Cash Advance Centers, Inc. operates 125 stores in South Carolina. The company is also headquartered in Spartanburg.

"Consumers in South Carolina need to understand that, if this bill were to pass, it would eliminate one of the most trusted financial options they have when they have a short term need for small amounts of money," said the spokesman, Jamie Fulmer. He added, "If you take away the product, you don't take away the need for the product."

Advance America enjoys considerable support in the legislature, and the body has a long-standing reluctance to applying new regulations to business. But advocates of the bill said they were still optimistic.

The bill is sponsored by 25 representatives, about a fifth of the chamber.

"Am I delusional? No. I know it's going to be a huge fight," said Sue Berkowitz, director of the S.C. Appleseed Legal Justice Center. "But I feel like it's South Carolina's time to reign in this problem."