The law | A new law requires counseling for people seeking loans in the so-called subprime market for borrowers with poorer credit.

To arrange counseling | Call the S.C. Housing Authority's counseling hot line, 1-866-756-2895.

S.C. homeowners forced to borrow at high interest rates now enjoy more legal rights.

The S.C. High Cost and Consumer Home Loan Act, which went into effect Thursday, will help protect borrowers from unfair high-cost loans and unscrupulous lenders.

The focus here is so-called "subprime lending," which charges higher interest rates to borrowers considered at risk of not repaying their loans.

Subprime lending is big business in the United States, growing from $35 billion in 1994 to $213 billion in 2002. But it makes loans available to those who could not qualify otherwise. And it's open to some degree of abuse, usually called predatory lending.

Predatory lending costs S.C. consumers an estimated $107 million in excess interest payments, said a 2002 study by the Center for Community Capitalism at the University of North Carolina.

Nationwide, consumers lose about $9.1 billion a year to predatory lenders, according to the same study.

The new law blocks lenders from making high-cost loans that hurt borrowers, especially low-income and elderly customers.

It requires lenders to advise customers of their rights and obligations; and it could save borrowers millions of dollars each year.

"I think this is a great law that both sides can live with," said Brian Boger, a Columbia real estate and consumer law attorney.

Boger said more than 130 people sought his help in 2003 to handle high-cost home loans.

"These people are in over their heads with huge installment payments, balloon payments and points and fees," he said. "They've needed help for a long time."

The idea of some form of consumer protection goes back to the 1990s. It wasn't until after a series of hearings during the 2003 session, however, that the S.C. General Assembly approved legislation specifically dealing with so-called "predatory lending."

"The lawmakers heard from people from all over South Carolina," said Brandolyn Pinkston, acting administrator of the S.C. Department of Consumer Affairs. "They saw how their own constituents were suffering from foreclosures, and, for the first time, they could put a face on that suffering."

Sue Berkowitz, a lawyer with the S.C. Appleseed Legal Justice Center, worked with others to negotiate the bill.

"The most important thing is that the legislature recognized the need to protect homeowners from unscrupulous lenders," she said. "People were losing their homes not just because of high interest rates, but also from outrageous fees and points."

Sen. David Thomas, R-Greenville, a prime sponsor, said the new law balances the interests of borrowers and lenders.

"The whole [subprime] industry should continue to survive and thrive, while at the same time, we keep a few bad apples from pushing the envelope," he said. "This will protect consumers without devastating an entire industry."

Both Thomas and Berkowitz said the S.C. law is modeled largely on an N.C. law overseeing subprime lending.

Just how the new law will affect the lending industry remains unclear.

In Georgia, 26 lenders pulled out of the state weeks after its Fair Lending Act went into effect.

So far, at least one subprime lender has said it will stop doing business in South Carolina, said Jo Lee Gudmundson, executive director of the 380-member S.C. Mortgage Brokers Association.

Gudmundson said the association, working with the S.C. Department of Consumer Affairs, has trained mortgage brokers how to comply with the new law.

She remains uncertain, however, whether the law could discourage some homeowners from seeking home loans.

"The major uncertainty, I think, lies in the refinancing market," Gudmundson said. "It might hinder some borrowers' ability to refinance. I think a lot of this will depend on the market and how lenders interpret the new standards."

Boger, the real estate attorney, speculates the new law will force lenders to hire lawyers to advise them at loan closings.

For example, a lawyer should stop a subprime lender from telling the borrower, as some do, that they must buy high-cost life insurance as an adjunct to the loan.

Instead, the lawyer should warn the lender that borrowers have the right to buy life insurance on the open market and are not obliged to buy it through their home loans.

"A lawyer is the first defense against an unscrupulous lender," he said.

Berkowitz thinks the great majority of S.C. mortgage brokers will follow the new law. Boger isn't as sure.

"The devil never sleeps," he said. "I'm sure some of them will try to find a way around it."