Payday lending rules OK'd

Rep. Nelson Hardwick, R- Surfside Beach, looks at his computer as other members of the House pack up at the end of the legislative session Thursday at the Statehouse in Columbia.

COLUMBIA — South Carolina legislators wrapped up their regular session Thursday by approving restrictions on the payday lending industry that will limit the number of loans that can be taken at one time and track customers who apply for them.

Legislators called it the most significant legislation passed in a session overshadowed by feuding between lawmakers and Gov. Mark Sanford over federal stimulus money. Many pointed to the unchanged, 7-cent per pack cigarette tax as their biggest disappointment among the bills left undone.

The payday lending compromise caps the amount of each loan at $550 and requires a one-day wait between loans for a borrower's first seven consecutive loans. It gives borrowers one day to change their minds and undo a loan and allows borrowers who can't repay to enter a fee-free extended payment plan.

Payday loans are criticized as having high interest rates which quickly swamp people who can't pay them off, or who take out multiple loans.

In South Carolina, lenders charge $15 for every $100 borrowed on a two-week loan, which is supposed to be capped at $300, but there's no limit on the number of outstanding loans. Critics say people write two checks at a time, and end up taking out more loans to pay for those they can't pay off.

The measure passed the Senate on a 41-4 vote with less than two hours left in the legislative session. The House then signed off 102-6, sending it to the governor's desk.

"That's what you call pulling a rabbit out of a hat," said House Labor Commerce and Industry Chairman Bill Sandifer. The Seneca Republican said the measure protects consumers while keeping the option open for folks who need a short-term loan for unexpected situations.

Sanford spokesman Joel Sawyer said the governor would closely review the compromise.

Industry advocates say the loans are needed as a cheaper alternative to fees for bounced checks, electricity shutoffs and late credit card payments.

Jamie Fulmer, spokesman for Spartanburg-based Advance America, said his company — the industry's largest — is pleased the bill passed because it provides some protection for the "few customers who do get into trouble with the product," while keeping the loans available to consumers. However, he believes parts of it overreached.

"The result will likely be one of the most restrictive laws in the country," he said. "Unfortunately, some short-term lenders may be forced to close as a result of this new law, and others will be significantly impacted."

Neighboring states Georgia and North Carolina have banned the industry, while eight others either don't have laws allowing it or cap interest rates at a level at which the industry won't bother setting up shop, according to the National Conference of State Legislatures.

Lawmakers had agreed limiting borrowers to one loan at a time was critical to preventing the poor from getting trapped in a cycle of debt. Lenders also must check a new online database to ensure customers don't have outstanding loans elsewhere.

"I've seen how it has financially destroyed individuals," said Rep. Alan Clemmons, R-Myrtle Beach, who had argued on the House floor for a tougher measure.

Sue Berkowitz, an advocate for the poor, said, "We'll be able to show that people do really borrow and can't pay the money back."