Today's editorial argues that the current economic unraveling makes it especially important that S.C. legislators rein in payday lending in 2009:
S.C. Rep Alan Clemmons, R-Myrtle Beach, showed grim determination recently in renewing his two-year fight to bring S.C. payday lenders under control. Earlier this month, he prefiled a bill for the legislative 2009 session that would limit customers of payday lenders to one loan at a time and cap the annual interest rate for such loans at 36 percent. Passage of his bill would protect our state's most vulnerable residents from the industry's predatory lending practices.
As Clemmons is well-aware, however, passage of his bill verbatim will be more difficult than shooting a hole in one on a five-par hole. Except for the facts that the economy is unraveling and traditional lending for folks with marginal credit has all but dried up, his new bill might have no chance at all.
Earlier this year, readers will recall, legislative leaders could not bestir themselves even to pass a Senate payday lending bill with provisions so mild you couldn't fairly deem it reform. That measure, which never got a hearing in the House, would have limited the customers of payday lenders from borrowing more than 25 percent of their income or $500, whichever is less, The 2008 Senate measure would also have barred customers from taking out new loans until their existing loans are paid off. As well, customers who pay off payday loans would have had to wait seven days before taking out a new payday loan. Most conspicuously, the Senate "reform" package would have allowed payday lenders to continue charging annualized interest rates of up to 300 percent. 300 percent.
Even though the Senate bill posed little threat to payday lending's fabulous profitability, industry lobbyists fought it into oblivion. When it reached the House Commerce Committee late in this year's session, Chairman Henry Cato, R-Greenville, refused to bring it up for discussion. Subsequent Senate attempts to force the House to revive the bill were unsuccessful.
The current state law for "deferred presentment services," as payday lending is euphemistically known, allows the "industry" to make short-term loans at usurious annual interest rates, and to drive borrowers who default more deeply into debt with refinanced loans.
Current law also allows them to extract additional lending fees with each refinancing. Having been licensed to loot residents with impunity, the industry had collected an estimated $776 million in fees and interest since 1999 by the end of 2007.
The industry no doubt would argue that in the hard times we're now experiencing, payday lending under these rules is more necessary than ever - adding that some lenders already discourage deeply indebted borrowers from taking out more loans. But if current law remains intact, some lenders will drive low-income workers and seniors deeper and deeper into debt (charging loan-default fees every step of the way) when what borrowers really need to be doing is staying out of debt.
Back in good times, when jobs were easier to find and debt was easier to repay, legislators in Georgia and North Carolina had no trouble adopting the rules that Clemmons proposes for South Carolina. Perhaps hard times and their consequences will persuade S.C. legislators that in 2009, they also should rein in payday lending.