COLUMBIA — The S.C. House gave overwhelming key approval Wednesday to a bill aimed at preventing residents from being trapped in a cycle of debt through payday lending.
The proposal, approved 93-16, prevents consumers from taking out more than one loan at a time, up to $600. An online database, which must be up by Feb. 1, 2010, would instantly report when a loan is made.
Lenders must check it to ensure customers don't have outstanding loans elsewhere.
In South Carolina, lenders charge $15 for every $100 borrowed on a two-week loan. The bill requires the industry to let customers go into an extended payment plan if they can't meet that deadline, without incurring any extra fees.
The bill requires another perfunctory vote in the House before heading to the Senate, which approved restrictions on the industry last year.
The bill is sponsored by House Speaker Bobby Harrell, R-Charleston, and other House leaders who last year killed attempts to restrict the industry.
"Regulating the practice and enacting consumer safeguards is the right thing to do," Harrell said. "These loans are meant to be short-term financial solutions for unforeseen expenses. Capping the loan amount and creating a statewide database to ensure that someone can only have one loan at a time will help prevent individuals from falling into a bottomless cycle of debt."
Critics said the bill did not go far enough in stopping the industry from preying on the poor. Supporters argued that people sometimes need a temporary infusion of cash, and putting the industry out of business would only drive them to loan sharks and online, unregulated lenders.
"I believe we've done the best we can," Rep. David Mack said. The real-time database means "literally, a person cannot go into one payday loan entity, walk across the street after getting one and get another. That's been the main problem — multiple loans."
Mack, D-North Charleston, found himself at odds with fellow members of the Legislative Black Caucus. He said he too used to want to ban the industry but realized doing so would create more problems for people, such as bounced checks and utility cutoffs. It's not just poor people who need the loans, he said.
"Is it the perfect model? No, but our banks aren't either," Mack said.
Opponents said residents should have to wait a week between loans, so one loan's not funding another.
In a compromise, which many opponents deemed not good enough, legislators limited a customer to 10 successive payday loans. After 10, the customer can't get another one until at least one pay period has passed.
"I can see how some people can be trapped in, every payday, paying off fees, taking a loan, paying off fees, taking a loan," said House Minority Leader Harry Ott, D-St. Matthews. "I believe a point in time, whether it's one week or 10 pay periods, is better than no stopping point."
Opponents tried unsuccessfully to limit loans to $500 or less, tie the loan to a person's gross income and cap interest rates.
"Let's not be No. 1 in payday lending," said Rep. Alan Clemmons, R-Myrtle Beach, who put up the majority of failed amendments.
Rep. Joe Neal said legislators should be ashamed for allowing payday lenders to exploit residents. He said South Carolina should have learned from the subprime mortgage abuses that put the national economy into a tailspin.
"Yet South Carolina seems unwilling to learn from that example as we continue to pass legislation that puts this state economically at risk," the Hopkins Democrat and minister said.
South Carolina is one of 35 states that allows any form of payday or cash-advance loans. Some states have cracked down on such loans in recent years, often by putting caps on interest rates, usually at 36 percent or less.
The industry has been practically outlawed in neighboring Georgia and North Carolina. In Pennsylvania and Arkansas, such caps led Advance America to close some stores there in 2007 and 2008.
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