State prepares to wage battle on payday lenders

Wednesday, 08 August 2007

Page 1 of 2 By Kristen Poland It’s been more than a month since the city of Rock Hill passed zoning ordinances in an effort to curb the rapid increase of payday lenders within the city. But Rock Hill isn’t the only place in South Carolina concerned about the payday lending industry. Across the state, lawmakers and consumer advocates are pursuing statewide legislation that would regulate an industry they say takes advantage of consumers by trapping them in a cycle of debt. In South Carolina, the number of payday lenders has skyrocketed from 274 in 1998 to about 1,200 today. According to statistics published by John Ruoff of S.C. Fair Share, from July 1, 2005, to June 30, 2006, there were 52 new payday lenders in the state. Across the country, there are more than 22,000 payday lenders. Last year, payday lenders collected $186 million in fees within South Carolina and $4.2 billion nationwide. South Carolina is a hotbed for the businesses, says Rep. Christopher Hart, D-Richland, because payday lenders have been banned or heavily regulated in surrounding states, including Georgia and North Carolina. Hart is one of a handful of state legislators passionate about regulating the payday lending industry in South Carolina. “We’ve been bombarded by the businesses,” Hart said. “They’re on every corner. Sometimes there are three, four or five in one shopping center, right next to one another.” Payday lenders maintain that they provide a meaningful service to consumers who need extra funds in the event of an emergency. In addition, they say their fees are much less expensive than those banks impose for bounced checks, or that utility or credit card companies might charge for a late or unpaid bill. Currently in South Carolina, payday lenders may charge customers up to $15 per $100 transaction. On average, insufficient funds fees and credit card late charges average about $27 per incident.  “We believe we meet a strong consumer demand to provide means to obtain funds in emergency situations, such as unexpected child care issues or health problems,” said Jamie Fulmer, spokeswoman for Advance America. The Spartanburg-based company has 130 locations around South Carolina and 2,900 nationwide. While customers who take out a loan and then pay it back within the allotted time, usually two weeks, may save money by using a payday lender, opponents of the industry say the majority of consumers who use payday lenders cannot afford to pay back the initial loan and so they take out a second loan to pay back the first and a third to pay back the second, thus entering a cycle of debt. If the $15-per-$100 fee is calculated as an annual percentage rate, it works out to about 391%. This is based on the fact that if a customer took out a loan, then continued to take out a new loan every two weeks in order to pay of the previous loan, the customer would end up paying $390 in fees by the end of the year and would still owe the principal $100.  “Once you pay a fee at a bank, that’s it, that’s the end of it,” Hart said. “With payday lenders, a customer may take out a loan, but most of these customers are on a fixed income. If something happens—their car breaks down, they have a medical emergency—and they cannot pay back their loan, they go to another payday lender and take out another loan to pay off the first one. If people could take out one loan and then pay it off before they were allowed to take out another loan, we could avoid this cycle of debt.”   << Start < Prev 1 2 Next > End >>