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S.C. Statehouse
Report
Sunday, March 11, 2007
VIEW: http://www.statehousereport.com/columns/07.0311.lending.htm
Something's got to be done about payday loan business
By
Andy Brack,
Publisher
 MARCH
11, 2007 -- You can hardly drive down a major road without
bumping into a payday loan office. They're as ubiquitous as
fast-food restaurants, billboards and neon signs.
But it's the numbers on the payday loan business that tell
a revealing story.
Since 1999 when the industry was allowed in South Carolina,
it has grown into more than 1,100 payday lending offices that
offer upwards of 4 million small loans a year. In fact, South
Carolina borrowers paid almost $150 million in finance charges
through the end of June 2005, according published reports
that cite the SC Board of Financial Institutions.
Across the nation, payday lending - - providing short-term
loans of up to $600 with a charge of $15 per $100 - - has
become a business with $6 billion in revenues and 22,000 locations.
Translation: Payday lending is a big business. Lenders say
they're providing a needed service, which is obvious because
people are using them. Critics say the finance charges paid
by mostly low-income people who need a little help between
paychecks can reach the equivalent of 390 percent. They say
it amounts to "predatory lending" because the industry
preys on people by getting them locked into a cycle of debt.
Consumer advocates in South Carolina and across the nation
have raised more attention to the industry in recent weeks.
In turn, that's prompted a $10 million publicity blitz by
the payday lending industry to urge people to be more responsible
in their personal financing. In other words, they are implementing
a public relations campaign to woo the public into being more
responsible. (Sound like a similar strategy cigarette companies
used to use?) But they're also undertaking a lobbying effort
at Statehouses to urge regulators to leave them alone by offering
assurances that they can self-police the industry.
In South Carolina, 83 Democratic and Republican lawmakers
have co-sponsored a bill introduced by SC Rep. Alan Clemmons,
R-Horry, that would limit payday loans to a 36 percent interest
rate and to one per customer. Clemmons modeled his legislation
after a federal law signed last year that limits interest
charged to military personnel to 36 percent.
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Despite seeming overwhelming bipartisan support, House Labor,
Commerce and Industry Chair Harry Cato, R-Greenville, says
there doesn't seem to be a lot of legislative steam behind
getting something done this year because it's not a number
one issue for most lawmakers.
One big issue is whether the $15 per $100 charge by payday
lenders really is exorbitant interest or just a fee paid by
borrowers. Cato and others point out that if it is considered
interest, then comparable interest rates for something like
a $35 bounced check charge can soar well above 390 percent.
Sen. David Thomas, the Greenville Republican who heads the
Senate Banking and Insurance Commission, said he's ready and
willing to take on payday lending. But if the industry's practices
are examined, the Senate won't single out one industry. Instead,
it would take a look at broader fee regulation, which could
bring into focus an array of practices by banks, title loan
companies and more.
"If it comes through my committee, there's going to
be an even-handed approach - and I see no takers," Thomas
said.
What he means is that banks, which might want to put payday
lenders out of business by quietly supporting reform efforts,
might not be so quick to criticize if they realized that high
fees on some of their services might also come under scrutiny.
"Nobody has come to me on that challenge," Thomas
said. "But the talk is good when they talk about one
industry."
Bottom line: The excesses and predatory lending by some in
the payday lending arena are rightfully being castigated by
consumer advocates. But until lawmakers start hearing more
on real reform for the industry - - and the lending industry
as a whole - - don't look for a lot of change anytime soon.
You can reach Andy Brack, publisher of
SC Statehouse Report, at brack@statehousereport.com.
Recent commentary
A
roller coaster ride
Another great cartoon by Bill McLemore:
3/4: Barnwell already received assistance
To the editor:
Thank you for your
article highlighting the fact that South Carolina’s
credibility is on the line with the Barnwell “Dump”
bill. It’s important to note that Barnwell County has
received ample dollars to prepare for reduced income after
2008. In 1986, $9 million in surcharges were earmarked for
Barnwell County for the expected transition to the Southeastern
Compact in 1992 (which never occurred). The current law was
the result of the Nuclear Waste Task Force appointed in 1999
by Gov. Jim Hodges.
Sen. Brad Hutto and Rep. Lonnie Hosey represented Barnwell
County on the Task Force and all stakeholders agreed to a
gradual roadmap to prepare for a reduced, break-even operation
after 2008. Connecticut and New Jersey paid $12 million when
they joined the Compact to create an Economic Development
Fund for Barnwell and $10.5 million has already been spent.
In addition, Barnwell has received $2 million annually since
2000, another $12 million to date. This $24 million represents
almost $1 million per job that may be lost when operations
are scaled back after the Compact. (51 full time jobs may
be reduced to 25 after 2008)
A fair question to ask Barnwell if once again the Compact
is broken is whether or not it intends to repay the citizens
of South Carolina for the dollars already accepted as “pay
off.”
-- Ann Timberlake, Executive Director, Conservation
Voters of South Carolina, Columbia, SC
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