COLUMBIA — Borrowers could have only one payday loan at a time worth $500 or less under state legislation aimed at tightening restrictions on an industry some say traps clients in a cycle of debt.
The Senate sent the legislation — after closely defeating a proposed ban on the industry — to the House for consideration.
"I am not pro-payday lending or anti-payday lending," said Rep. Wallace Scarborough, R-James Island. "I am trying to do the best for the people of South Carolina. I am trying to help reach a compromise. I think people are shortsighted if they say we need an outright payday lending ban."
Payday loans are small, short-term, unsecured loans that borrowers promise to repay out of their next paycheck or regular income payment, according to the Federal Deposit Insurance Corp.
Scarborough, a member of the House committee that will first review the Senate bill, said the Legislature should find ways to "clean up the industry." The lenders, he noted, serve a purpose for people who need the types of loans not available at banks.
The bill requires a seven-day cooling off period between loans and caps the amount at 25 percent of the borrow's income for the term of the loan, or a maximum of $500. That means a typical borrower with an annual income of $25,000 to $30,000 could borrow about $250 to $300 during a two-week period.
The bill also calls for the state's Board of Financial Institutions to maintain a database of borrowers and allows customers to repay the loans in installments over a period of at least 60 days.
Susan Berkowitz, director of South Carolina Appleseed Legal Justice Center, said payday lenders are "manipulating" existing state law and lending borrowers up to $600 at once with annual interest rates of up to 390 percent, or $15 for each $100 borrowed.
Many are left taking out additional loans to pay back others, she said.
Berkowitz said she recently spoke to an 87-year-old woman, who did not want to have her name made public, that had half a dozen loans.
"When I say it breaks my heart — it is just wrong," Berkowitz said.
Jamie Fulmer, director of public affairs for Spartanburg-based Advance America, said thousands of South Carolinas rely on the industry and don't abuse it. He said in states like Georgia and North Carolina that have banned the lenders, a recent independent study found that consumers are incurring more bounced check fees and higher instances of bankruptcy.
"It clearly demonstrates that just because you've eliminated a product doesn't mean you've eliminated a need for a product," Fulmer said.
Banning the industry also leads people to find Internet lenders unregulated by state laws, he said.
Sen. Robert Ford, D-Charleston, originally filed the legislation in February 2006 to force the lenders out of the state.
"It's a vicious cycle that means people stay in debt," Ford said.
Although the ban did not pass, Ford said putting the restrictions in place is a better solution because he thinks many lenders will leave the state, leaving a few, but necessary, lenders as an option for people who get caught short on cash.
Next, Ford said, he wants to target lenders who use car titles to make high-interest, short term loans and credit card companies that charge exorbitant fees.
"That's another monster," he said.
To get help
To get credit counseling and help with debt management, call Family Services Inc. in North Charleston at 744-1348, ext. 10.