It's time for South Carolina to put limits on the exorbitant interest rates charged by payday lenders. A bill in the state House would do just that, and it deserves serious consideration.

The proposal, by state Rep. Alan Clemmons, R-Myrtle Beach, would cap annual interest rates that payday lenders can charge at 36 percent and would limit other fees to $5 per $100 borrowed, according to a report by The Associated Press. The proposal also would prohibit such lenders from making more than one loan at a time to any individual.

"The way that the industry is now operating is an abuse of lending practices," Clemmons told the AP.

Payday lenders offer short-term loans, typically in amounts of $300 or less. The lenders charge fees that are equal to annual interest rates that in some cases exceed 700 percent. Critics contend that some of the lenders prey on people who are out of options, and the practice leads to a cycle of debt that can end in financial ruin as borrowers extend loans or take out new ones to meet the obligations of previous loans. Lenders counter by saying they simply offer a product that people demand.

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There's no doubt there is a demand for this product. However, enough legitimate questions have been raised about this industry to warrant regulation. The limits proposed in Clemmons' bill are the same as standards set last year by Congress on loans made to military personnel. Those changes prompted Spartanburg-based Advance America -- the nation's leading payday lender -- to stop making loans to active service members.

According to the AP, the restrictions would limit the charges on a two-week, $100 loan to $1.38. Advance America spokesman Jamie Fulmer told AP that would not be enough to cover the company's payroll or other expenses. "Our position is 36 percent is not regulation, it's effective prohibition," Fulmer said.

He may be right. But 37 other states and the federal government regulate this industry in some way. Some states -- such as our neighbors Georgia and North Carolina -- have even gone so far as to ban the practice altogether. That's not an extreme solution, and certainly some advocate that South Carolina follow suit.

Gov. Mark Sanford has been noncommittal about payday lending regulation. He said last year that he would look at legislation regarding payday lenders, but that it would be more "trimming around the edges."

Although the governor is right that government should rarely intrude on the ability of business to operate in a free market, that should not include businesses that prey on people in desperate circumstances.

The General Assembly should approve and Gov. Sanford should sign real payday lending regulation.

Post a Comment   View All Comments hadit If there wasn't a market the business would fold. It is better to pay a large interest for a short time than to pay a larger amount for making a late payment. hadit Posted: Tue Feb 06, 2007 12:54 pm penelope541 Follow the link: http://www.scstatehouse.net and search under the term usury. You will get three pages of citations regarding usury. More importantly, the FEDERAL law: DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT OF 1980 signed into law by Reagan in March, 1981, set up the mechanism for the high interest loan sharks and credit card companies. The reason for the act is stated pretty succinctly: "To facilitate the implementation of monetary policy, to provide for the gradual elimination of all limitations on the rates of interest which are payable on deposits and accounts, and to authorize interest-bearing transaction accounts, and for other purposes." You can go to the U.S. Congress web site and put in the term "deregulation and monetary control act" and read the entire act. There is also a good discussion at: http://www.fdic.gov/bank/analytical/bank/bt_9805.html penelope541 Posted: Tue Feb 06, 2007 1:58 am the Writer To my knowledge, SC never had usury laws. the Writer Posted: Mon Feb 05, 2007 10:30 pm penelope541 These loan shark outfits started popping up when the Republican controlled Congress lifted the usury laws under Reagan or papa Bush (can't remember which) some years ago. It was touted as bringing the free market to the banking industry and this, in turn, would lower interest rates. What it did was allow the credit card sharks to raise rates to the max! The usury laws should be reinstated nationally (with the 18 per cent cap) and certainly at the state level. Because many of these sleazy Payday loan companies are affiliated with the major banks, they should also be required to post on the front doors which bank they are affiliated with - in BIG BOLD LETTERS. penelope541 Posted: Mon Feb 05, 2007 10:12 am Malamute Are there usury laws? If so, don?t legislators have more important things to consider? Do payday lenders benefit society? If not, why allow them? Is this complicated? Malamute Posted: Mon Feb 05, 2007 10:00 am mechdave Good article. I think the cap will not affect the legal loanshark (Payday Loan) industry. Greenwood County has 28 Payday/Title loan businesses preying on the many who are getting by week to week. 35 percent is gooood for them. There are many businesses where the free market will not work and hurt the consumer. Gasoline is one of them and should be regulated as a utility with price caps. Payday loans should be regulated simaler to banks using the prime as interest for credit cards. In short, I think 35 percent is way too generous, I recommend that the law is changed to require that Payday Loan companies rate their take on the prime rate used by banks. mechdave Posted: Mon Feb 05, 2007 8:34 am Post a Comment   View All Comments