Posted on Fri, Feb. 09, 2007

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Capping payday lending rates would be compromise

LAWMAKERS must not allow payday lenders to derail efforts to severely restrict the harmful practice and give consumers relief from 391 percent interest rates.

That’s not going to be easy. Lobbyists from within our state as well as from Tennessee, North Carolina and elsewhere have descended on the State House with the sole purpose of undermining the effort to help citizens keep their hard-earned money in their pockets.

South Carolina’s payday lending law has practically no protections for consumers. It sets borrowers up as easy marks. Payday lenders, whom Georgia and North Carolina have wisely banned, realize South Carolina is a killing ground for borrowers, and they intend for it to stay that way. Ten years ago, there were only 300 to 400 payday lending locations in this state; that number has ballooned to more than 1,100. The lenders charge $186 million in fees a year and make more loans annually than there are people in our state of about 4 million.

Fortunately, some lawmakers have heard the cries of consumer advocates, such as S.C. Appleseed Legal Justice Center, AARP South Carolina and S.C. Fair Share, as well as constituents and business owners who say lenders are sucking the life out of the poor, working class, elderly and disabled.

Rep. Alan Clemmons, R-Horry, has introduced a bill that would cap the interest rate at 36 percent, limit borrowers to one loan per payday lending company and restrict out-of-state Internet payday lending. Eighty-six representatives, well over half of the 124 members of the House, have joined as co-sponsors. While that’s not a guarantee the bill would pass, it’s a strong indication that House members see the need for severe restrictions. But they must work to get the bill out of committee and then vote for it. There are also other efforts to rein in the industry. Rep. Lonnie Hosey, D-Barnwell, haa authored a bill that would criminalize payday lending.

But payday lenders are working behind the scenes and at the subcommittee level to stop the legislation or, at the least, water it down. They seem to have allies in subcommittee Chairman Wallace Scarborough, R-Charleston, as well as members such as Rep. Grady Brown, a Lee County Democrat who says he has a good friend in the payday lending industry, and Rep. William Bowers, D-Hampton. Mr. Scarborough has told consumer advocates and the lenders to forge a compromise. He says he knows there are abuses that need to be fixed but that payday lending serves a purpose.

Whatever good payday lending could purport to do is negated by a usurious effective interest rate and, as Mr. Clemmons puts it, a failed business model that depends on people not being able to pay their debts. Rep. Clemmons aptly refers to payday loans as “the crack cocaine of the lending industry.” The loans are very easy to get and it’s very easy to expand your consumption of them, he said. “It can destroy you financially.”

Payday lending isn’t a tiny problem that can be fixed with minor adjustments in the law. This state would be doing a grave disservice to consumers if it adopts half-measures that sound good and appease deep-pocketed lenders and their high-paid lobbyists, but continue to allow the industry to run roughshod over consumers.

Supporters of the industry think it’s harsh to cap the interest rate. But that actually falls short of a real fix. The best thing would be to ban this practice and end payday lenders’ fleecing of South Carolina’s citizens. Rep. Clemmons’ idea is the compromise. Nothing weaker should be considered.