Regulate payday lending

By Staff Reports

The S.C. House has passed a toothless payday lending bill that does almost nothing to protect residents from the industry's predatory lending practices. Now, it is up to the state Senate to come to the rescue.

Theoretically, that should not be difficult. The Senate could simply pass the same bill it did last year, providing reasonable restrictions on lenders and some protection for borrowers.

That bill limited borrowers to one loan at a time and required a seven-day cooling-off period between loans. More significantly, it capped the amount of a loan at 25 percent of the borrower's income or a maximum of $500. And it required the State Board of Financial Institutions to keep a database of payday loans to prevent borrowers from shopping for loans from one payday lender to another.

Senators could improve on that bill by capping the inflated interest charged by payday lenders.

Unfortunately, the Senate bill never made it to the House floor last session -- due in large part to opposition by House Speaker Bobby Harrell. This year, Harrell is the primary sponsor of the House bill that could have been written by the payday loan industry's lobbyists.

The House bill would limit borrowers to one loan at a time and establish a database to track loans. But it places no cap on interest rates, and it would double the amount of money a consumer could borrow -- from $300 to $600.

While the payday lending lobby paints the industry as an emergency lender to people with few other options, it makes most of its money from enticing borrowers into a cycle of endless loans. The Center for Responsible Lending, which opposes predatory payday lenders, notes that borrowers who obtain five or more loans a year account for 90 percent of the lenders' business.

In many cases, the center reports, payday borrowers are paying more in interest -- at annual rates of nearly 400 percent -- than the amount of the loan they originally borrowed. South Carolinians pay nearly $160 million annually in fees alone.

Both North Carolina and Georgia have effectively banned payday lending in their states, as have 14 other states. And many more states strictly regulate the industry.

But the bans in two neighboring states have encouraged payday lenders to focus their interest on the Palmetto State, especially near the state line. The state has about 1,100 payday-lending stores, including at least 50 in York and Lancaster counties.

The industry helped grease the way for the House bill with nearly $300,000 for lobbyists and political contributions. Clearly, payday lenders have an interest in limiting regulation and maintaining their income base in South Carolina.

Just as clearly, they are well satisfied with the bill that emerged from the House. We hope senators can do a better job of protecting the public, especially during these difficult economic times when thousands more are vulnerable.