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.