Columbia -- A $2.5 million settlement has been reached in the 2007 class-action lawsuit brought by South Carolina borrowers against the state's payday lending industry.
The sweeping agreement could yield small settlement claims -- about $100 -- for anyone who took out a short-term, high-interest payday loan with such lenders as Advance America, Check Into Cash of South Carolina and more than a dozen others between 2004 and 2009.
Richland County Circuit Judge Casey Manning first must approve the terms of the settlement, and a fairness hearing on that matter is scheduled for Sept. 15. The payday lending industry maintains it has not broken any laws, as the lawsuits allege.
Payday lending customers in the affected time period who want to be part of the settlement have until Sept. 1 to file a one-page claim application, available at scpaydayclaimsettlement.net.
"We think we can stand before the judge and advocate to the court why this settlement is fair, reasonable, and adequate, under the given circumstances," said Mario Pacella, an attorney with Columbia's Strom Law Firm, one of several firms representing plaintiffs in the case.
Before state lawmakers last year passed new regulations on payday lenders, they could extend loans of $300 or $600 usually for two-week periods. The borrower would exchange cash for a post-dated check to the lender. The checks covered the principal and interest for the two weeks, which on a $300 advance totaled $345.
If the borrower could not repay at the end of the period, the loans were often rolled over, and the customer would be assessed an additional $45 interest fee on the same outstanding $300 loan. Some borrowers would take out multiple loans to cover outstanding loans.
The result, according to consumer advocates, customers, and industry experts, was legions of borrowers trapped in spiraling cycles of debt. The lawsuits claim the industry loaned money to customers knowing they could not pay it back, escalating payday lending profits.
Several state lawmakers also have had leading legal roles in the payday lending lawsuit, including 2010 Democratic gubernatorial nominee Vincent Sheheen of Camden, Sen. Luke Rankin, an Horry County Republican, and former Spartanburg Sen. John Hawkins, a Republican. Those current and former lawmakers could share in the $1 million in legal fees the case could yield, something some members of the General Assembly criticized.
Sheheen said he did not know much about the settlement because he's been running for governor full time. But he thinks there is no conflict of interest.
"To some degree, lawmakers regulate everything," Sheheen said, adding it is virtually impossible for lawmakers who are lawyers to avoid cases involving state-regulated industries.
"The only question lawyers need to answer is whether there's a direct conflict of interest," Sheheen said. "And in this case, obviously there wasn't."