Bill would cap payday lender rates, fees

COLUMBIA -- South Carolina is joining other states this year in working to cap payday lender interest rates and fees.

South Carolina state Rep. Alan Clemmons introduced a bill Wednesday capping annual interest rates at 36 percent and fees at $5 for every $100 borrowed.

Clemmons said he filed the legislation after a friend showed him paperwork for a woman trapped in a cycle of renewing short-term loans who was worried she would lose everything she had. The fees charged were "just incredible," he said.

"Quite frankly, the way that the industry is now operating is an abuse of lending practices. The lending model is based on the person's inability to pay," Clemmons said.

The cap is identical to new federal standards for loans to military personnel implemented last year. The legislation also prevents lenders from having multiple loans with each customer, a practice that increases fee payments, Clemmons said.

Other states also are looking at more regulations for payday lenders. Virginia legislators are calling for a 36 percent cap, better tracking of loans or an outright ban in a dozen bills filed as their legislative session started. And in Arkansas, the AARP is pushing a bill that would fine payday lenders $300 for each loan made charging more than 17 percent in interest.

Along with the 36 percent annual percentage rate cap, Clemmons' legislation would limit loan fees to no more than $5 for each $100 borrowed, down from the $15 now routinely charged.

Those restrictions would leave lenders charging $1.38 on a two-week, $100 loan, said Jamie Fulmer, spokesman for Spartanburg-based Advance America Cash Advance Centers Inc., the nation's largest payday loan lender.

Those fees wouldn't be nearly enough to meet payrolls or operating expenses, Fulmer said.

"Our position is 36 percent is not regulation, its effective prohibition," Fulmer said.

The annual percentage rate "is the wrong tool to measure our industry" because the loans typically are for a couple of weeks, Schlein said.

If fee and interest standards set in the legislation were applied to other financial transactions, such as overdraft protection on checks or ATM fees, they would break the cap, too, Schlein said.

Around the nation, 37 states regulate the industry that allows people to borrow against future paychecks, said Steven Schlein, a spokesman for the Community Financial Services Association of America, an industry group.

With many state legislatures around the nation starting sessions this month, Schlein expects more efforts to limit payday-lending practices.

Some states have gone further, including North Carolina and Georgia, where laws effectively ban payday lending. Clemmons, R-Myrtle Beach, said his interest caps may be the best option for the industry if it wants to continue operating in South Carolina.

"There are many folks out there that would propose -- and are lobbying me, advocating, that we should do as North Carolina and Georgia have done," Clemmons said.

Gov. Mark Sanford has said he would not push legislation aimed at capping interest rates for the industry and was wary of any bill that would force the small-loan business underground.

"We'll be open to taking a look, but our bias would be toward focusing on disclosure of the terms rather than regulation outside of what currently exists," Sanford spokesman Joel Sawyer said Thursday.