New payday lending regulations must be passed this year

As South Carolina lawmakers, we deal with many issues that affect the quality of life and prosperity of our citizens.

One of the most important before us this year is the need for more regulation of payday loan businesses, if not the banning of these loans.

According to information provided by the South Carolina Appleseed Legal Justice Center, payday lenders made over 4.3 million loans in our state in 2006.

These loans, secured by a future paycheck, are limited to $300 and cost the borrower $15 per hundred dollars loaned, and typically last two weeks. That's an annual rate of 391 percent. These interest charges totaled $155,834,568 in 2006 and most surely were higher in 2007.

Although most South Carolinians find these interest rates shocking and predatory, the real problem for consumers is not the price but the trap of debt. A consumer, unable to pay off the loan, goes to another payday lender and borrows funds in order to pay off the first. If you don't have $300 to meet this week's crisis, why are you likely to have $345 in two weeks? The cycle continues and escalates. We know of many South Carolinians juggling multiple payday loans. Often six or eight are outstanding at one time.

Payday loan offices are often found near military facilities or economically depressed areas. If you want to see a payday lender, go to the entrances of Fort Jackson in Columbia. A cluster of payday lenders in Aiken County services our soldiers at Fort Gordon in Augusta, where they are outlawed.

The Department of Defense, concerned that the entrapment of payday lending undermines our military readiness, successfully convinced Congress to limit the interest rate for military borrowers to an annual rate of 36 percent.

South Carolina's current laws have permitted this industry to flourish in our state. While the intention of the law passed in 1999 was to limit a borrower to one $300 loan at a time, the industry has found loopholes to allow lenders to take advantage of unsophisticated borrowers.

The bottom line is that a person borrowing $600 could end up paying $2,340 in interest over a 12 month period. We find this practice appalling and it demands legislative intervention.

What are the solutions? Our neighbors in Georgia and North Carolina have banned payday lending. Quite honestly, we think a ban is appropriate for our state as well.

Short of such action, we think a bill passed two months ago by the Senate significantly improves and reforms the way payday lenders do business in South Carolina.

The legislation sets up a state-run database to monitor loans and limits the number of outstanding payday loans, permitting only one loan at a time. Borrowers are limited to the amount they can borrow based upon their income and must wait seven days once a loan is paid off before taking out a new one. Lenders will no longer be allowed to electronically debit an account for payment.

If payday lenders mean what they tell the public in their multi-million dollar advertising campaigns that payday loans should only be used for limited, emergency consumer needs, the Senate bill holds them accountable for this purpose.

Time is running out. The bill needs to get to the floor of the House of Representatives for a vote and differences between the House and Senate versions need to be worked out.

The legislation then must go to the governor for his approval. All of this must happen by the first week of June.

The people of South Carolina deserve action on this critical issue, and they deserve it now.

Joel Lourie represents Richland and Kershaw Counties in the South Carolina Senate. Chris Hart represents Richland County in the South Carolina House of Representatives.