Payday lending reform should help consumers

By Warren Bolton - Warren Bolton

While other states clamp down on payday lending, it's unclear what South Carolina will do: coddle the industry as it has since the late '90s, or enact tough rules that help borrowers escape deeper debt spawned by these so-called emergency loans.

It's not clear because payday lenders, who typically dump tons of cash into lawmakers' campaigns, particularly in an election year such as this, are putting on a full-court press to prevent any legislation from passing that might significantly benefit borrowers.

For their part, senators have unequivocally said they want to rein the industry in, and have approved a bill that would do just that. Under the Senate bill, lenders still would be able to charge the outrageous annualized rate of 391 percent, but borrowers could only get one loan at a time, and the amount would be limited based on their incomes. Also, there would be a seven-day cooling-off period between loans.

At one time, it appeared the House was leaning the way of the Senate -- and it still might end up there. Rep. Harry Cato, chairman of the Labor, Commerce and Industry Committee, which is reviewing the payday-lending legislation, predicted the committee would propose strong changes that would prevent abuse by lenders and consumers.

Well, the Banking and Insurance subcommittee led by Rep. Nikki Haley is making changes all right -- but they're aimed at watering down the Senate bill.

The subcommittee continues to work on the bill, but the one vote it has taken and the direction in which it's headed bodes ill for consumers. The committee has voted to remove a provision that would have limited loans to 25 percent of a borrower's income. It also decided to increase the amount of a single loan to $600. Currently, to get that amount of money, a consumer would have to take out two loans at $300 each.

Rep. Haley said she believes the industry needs to exist and that consumers shouldn't be stripped of an option to get money if they're in need.

"Our job is to not choose a side," she said.

But legislators chose a side in 1998 when they sanctioned payday lending. While legalizing what was at the time illegal, the people's elected representatives provided no real protections for consumers, leaving them at the mercy of payday lenders.

The legalized loan sharks proceeded to take advantage of South Carolina's lax law, which has allowed them to grow so large and powerful that it's difficult to regulate them. Since 1998, the number of payday-lending locations has grown from 274 to over 1,200. The largest payday lender in the nation, Advance America, is headquartered in Spartanburg.

And payday lenders have made it clear they don't intend to give up their stronghold -- or should I say stranglehold -- on our state easily. Every time a positive step is made toward protecting consumers, even a small one, the lenders send in lobbyists to undermine the effort.

It's time lawmakers chose the side of consumers. Just once.

"I do think that the payday-lending industry needs reform," Rep. Haley said.

Reform normally leads to conditions that leave people better off than they were. The direction the subcommittee is taking will do little to help unsuspecting borrowers escape the cycle of debt payday lending guarantees so many.

The Legislature owes this state's consumers better than a few adjustments -- window dressing -- that make it appear it's done something.

While lenders and critics whine about the Senate legislation, that's hardly considered "getting tough" these days, when you consider what's happening elsewhere. The federal government has limited the interest rate charged to military personnel to 36 percent. Some states have enacted the same cap for all consumers, and others are considering it. Georgia and North Carolina essentially have banned the industry. The lenders also have been chased out of states such as Arkansas and Pennsylvania.

Some say efforts to regulate payday lending strictly is needless government intervention. But it was the government that intervened to legalize these loan sharks in the first place.

If lawmakers can't regulate a business they legalized, perhaps they should go back and undo what they did in 1998.

And ban the industry.