Monday, January 15, 2007

South Carolina House members will soon consider limits on savings account payday loan lending, including caps on annual interest rates and restrictions on the number of loans consumers can hold.

A House leader said some limit is likely to be passed this year, with a bill expected to be introduced next week. However, a Senate leader said he opposes that measure in its current form.

Current law allows no fax cash loan lenders to charge $15 for every $100 on the two-week loans. That equates to an annual percentage rate of 391 percent, an amount that is too high and hurts the state’s work force, said Rep. Alan Clemmons, R-Horry, the bill’s chief sponsor.

“The business model is based upon an inability to pay,” he said. “The borrower is enslaved to the payday lender.”

Payday lenders disagree, saying most borrowers pay off their personal loans and use them responsibly. They oppose Clemmons’ bill, saying its proposed 36 percent cap would abolish the industry in South Carolina.

Interest charges on a $100 two-week loan would fall to $1.38, or less than 10 cents a day, said Jamie Fulmer, director of investor relations for Advance America, a payday lender based in Spartanburg. Lenders could also charge a $5 administrative fee per loan.

The revenue is not enough to support a typical cash advance payday loan office, Fulmer said.

Clemmons’ bill matches federal legislation passed last fall that applies to military personnel and their family members. That bill was introduced after some military leaders said they were concerned troops were overusing payday loans and falling into a cycle of debt that threatened their ability to do their jobs.

“If that regulation is good enough for our military personnel, it’s good enough for everybody,” Clemmons said.

Clemmons’ bill has the support of Rep. Chris Hart, D-Richland, who said his district includes many poor and low-income workers living in the Eau Claire and St. Andrews neighborhoods, where many offices providing no faxing payday loans are located.

“If you ride down Broad River Road, every other block has one. They’re sucking the blood out of the minority and poor community,” he said.

The bill is likely to be assigned to the House Labor, Commerce and Industry Committee, chaired by Rep. Harry Cato, R-Greenville.Cato said he expects some action to cap payday loan interest rates this year, but he doesn’t know if the 36 percent cap will stick.

“There’s no doubt we need to address payday lending,” he said. “These operations should not be allowed to take advantage of consumers.”

At the same time, he does not want a cap so low that it puts quick payday loan lenders out of business.

“Consumers have a right to make bad financial decisions,” he said.

If it passes, it might find tough going in the Senate.

Sen. David Thomas, R-Greenville, opposes placing limits on one type of consumer fast cash loan and not others. He prefers an overall limit on interest rates for all consumer loan transactions, including bank fees for overdrafts and automated teller machine withdrawals.

PAYDAY LIMITS

Rep. Alan Clemmons, R-Horry, expects to introduce a bill next week limiting payday loans, which he said are trapping many workers in a cycle of debt. It would:

Cap rates
- Rates could be no more than 36 percent. The state currently caps on fees for payday advance loans at $15 for every $100 in loan value, the annual equivalent of 391 percent based on a two-week loan. The bill would also allow a $5 administrative fee per loan.

Limit loans
- A consumer can have no more than one payday loan at a time from the same lender. Current state law effectively limits cash advances to one per location per consumer; this bill would apply to all locations.

Allow suits
- Lenders violating the law could be subject to consumer lawsuits for unfair trade practices. The bill would ban arbitration clauses in payday loan agreements.

This entry was posted on Monday, January 15th, 2007 at 6:40 am and is filed under South Carolina.