South Carolina Lenders Cashing in on Short-Term Payday Loans
By J.J. CameronPayday Loan Writer
Attorney Susan Berkowitz is a consumer advocate in South Carolina. She's witnessed the perils of payday advance lending for years now. While the future of payday loans in the state has been questioned recently, there doesn't appear to be an end in sight.
It's a dangerous business. What starts as one loan to cover an unexpected expense, or even groceries, often becomes two loans - the second payday loan used to pay off the first. Then it's a third loan, then a fourth and the cycle continues… Berkowitz said she met one client who was juggling 19 loans at the same time.
"The payday loan industry has learned to develop lending practices that take advantage of those who can least afford it," said Berkowitz, director of the South Carolina Appleseed Legal Justice Center, a Columbia-based advocacy group that provides legal services for the poor.
One of the problems is the stature of the payday loan companies in the state. These aren't tiny, mom-and-pop organizations; the nation's largest cash advance business is based in South Carolina, Advance America. It may be banned from offering payday loans in neighboring states, but in its home state, business is booming.
Payday loan controversy: Could corruption be stalling legislative action on payday cash advances? Two years ago, Gov. Mark Sanford hitched a ride to Seattle for a National Governors Association meeting on Advance America's private jet. Campaign spokesman Jason Miller said the governor was simply saving tax dollars by accepted the rise, which was legal under state ethics laws, because it avoided the use of state transportation.
Not everyone was pleased with this reasoning or situation, especially as the payday loan industry has seen such monumental profits over the last few years. In 2000, licensed cash loan lenders issued 2.6 million loans in South Carolina and charged $91 million in fees, according to the Appleseed Legal Justice Center. During fiscal year 2004, the most recently available data, that number had jumped to 4.3 million loans and fees of $153 million.
Since not all South Carolinians use this type of lending, it's safe to assume many people took out multiple payday cash loans.
"If they had that kind of money, they wouldn't need the loan in the first place," Berkowitz said. "It just spirals out of control."
A middle-class payday loan market: The company's target demographic is the hard-working middle class, said Jamie Fulmer, director of investor relations for Advance America.
That market is reflected in a company strategy that locates centers in high-visibility areas, such as strip malls, or close to high-traffic retailers, such as Target and Wal-Mart stores. As for fees on same day payday loans, Fulmer said the company's charges are comparable to what banks charge for a bounced check.
"We believe we provide a useful service to millions of Americans who need a cash advance between paychecks," Fulmer said.
Not in North Carolina, not any longer. Because Advance America was forced out of that state, it's vastly increased it's South Carolina payday loan business. Lawmakers up north determined the lenders' practices breached the state's 36 percent cap on interest rates.
Some consumer advocates would like South Carolina follow suit and ban payday loan lending, or at least modify existing laws. In 2003, the state Legislature did pass a law that required anyone borrowing money at higher-than-market interest rates to attend a free credit counseling session. It's a start.
But Appleseed would like to see more, such as a ban on online payday loan lending by lenders not licensed in South Carolina. Other regulations could soon be on the way; but in the meantime, this state is ripe for providers of cash loans to earn a profit.
