There’s a whole industry out there that makes a living by taking advantage of people who are desperate or unsophisticated or both, luring them into what look like easy loans that trap them in a cycle of perpetual debt because they have to keep taking out new loans, with added fees, to pay off the old ones.
In South Carolina, we have more than our fair share of such people, who find themselves unable to pay for unexpected car repairs or roof repairs or medical bills and assume that their only option is a payday lender or title lender or what’s called an installment lender — an assumption that often is tragically incorrect.
So it’s no surprise that we have more than our fair share of people who are struggling under the burden of loans they couldn’t afford to repay in the first place and certainly can’t afford once each new round of fees is added. The South Carolina Daily Gazette, an online news organization affiliated with the nonprofit States Newsroom, reports that South Carolinians had $2.8 billion in high-interest loan debt in 2022, with $650 million of that two months past due; an estimated 400,000 South Carolinians are struggling to repay these loans.
It’s hard to get a handle on precisely how many states restrict a particular type of predatory loan, but it’s clear that South Carolina coddles these lenders more than most other states, which have stricter regulations. Georgia and North Carolina, for instance, have banned payday lending.
South Carolina did put some restrictions on payday lenders back in 2009, but those businesses are still thriving, as is the industry as a whole, thanks not only to high interest rates but also to predatory lending practices.
For years now, religious leaders and other advocates for the poor have joined with credit unions to try to convince the Legislature to cap the annualized rate of interest on non-conventional loans at 36% — the amount the federal government caps loans to members of our armed services. And for years, the lenders have fought off those efforts.
This year, Sen. Tom Davis has joined the effort and brought a new approach: Instead of limiting interest rates — which a lot of people believe isn’t the government’s business — his S.910 would outlaw predatory practices. Among the most egregious is sending what are called “courtesy” or live checks to consumers in hopes that they’ll cash them and in so doing lock themselves into a loan with a triple-digit interest rate.
If the check-mailing scheme sounds familiar, it’s because shady financial companies have been doing that to trick people who have suffered traumatic brain injuries and other particularly vulnerable people into trading millions of dollars in future payments from personal injury lawsuits for a few thousand dollars; the Legislature outlawed that practice last year.
Sen. Davis’ bill also would outlaw making a loan without first conducting an analysis of the borrower’s ability to repay it, making a loan that the analysis shows the borrower doesn’t have the ability to pay off, flipping some types of loans and flipping others beyond a limited number of times.
There are provisions in the bill that free-market advocates legitimately object to — notably a provision that would outlaw marketing to low-income communities. That’s not the case for most of the provisions.
Although a lot of legislators object on principle to laws designed to protect people from themselves — at least when it comes to financial matters — we already have laws in place to protect people with regular paychecks who use traditional financial institutions. This would extend those protections to institutions that market to people who can’t imagine they could get a loan from traditional institutions.
And by providing a little consumer protection to some of our most vulnerable neighbors, the Legislature could reduce the chance that they’d get suckered into an unending cycle of debt that drives them further into poverty and the need for public assistance.
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