Payday Lending

Payday Lending

You’ve heard the catchy jingles on television for title loans.  You’ve seen storefronts for payday loans and pawn shops on every corner in certain parts of town.  But if you’re like many South Carolinians, you don’t know much about the “payday lending” industry.

Some of our fellow South Carolinians, however, are all too familiar with predatory loans and the harm they can cause.

According to www.debt.org, predatory lending is “any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford.”

These lenders make short term loans with high interest rates and fees, and they often do so without regard to the borrower’s ability to pay it back.  The loan is secured by the title to a vehicle, by a mortgage, by a post-dated check, by the lender’s online access to a borrower’s bank account to draft the loan repayment plus fees and interest, or other collateral.

According to SC Appleseed Legal Justice Center, there were 687,855 payday or title loans made to just over 86,000 borrowers in our state 2018.  This is an average of eight loans per borrower, and these borrowers paid $44 million in fees to these lending companies.

The January 2020 GPP program focused on predatory lending in South Carolina and what can be done about it. So many of the nonprofits funded by GPP members say that their biggest challenge is dealing with predatory loans that weigh down the people who they are trying to help.

Kerri Smith with Self-Help Credit Union shared background information with attendees.

Why is South Carolina so ripe for predatory loans?  Our regulatory environment is especially favorable to predatory lenders rather than borrowers.  In 1982, our legislature deregulated interest rates, allowing lenders to charge any rate they like as long as the maximum rate is filed with the Consumer Affairs Commission.  As examples, World Finance charges a max rate of 90%, North American Title Loans charges 372%, Speedy Cash and Advance America charge 450%,  TitleMax charges 520%, and eMoney USA, where South Carolinians can apply quickly and easily online for same-day money, charges a whopping 780%.

To combat these predatory practices, a law was passed in 2009 which placed restrictions on payday loans, but the industry changed its business model to allow for “supervised lenders” that avoid these new regulations.

So what makes these loans predatory?  It’s not just the interest rates and fees, but the ease of access and demographics and life circumstances that they target.

They have storefronts in areas underserved by traditional financial institutions and an online presence heavily advertised on social media, through SMS texting, and in gaming apps with catchy ads that say “Need $1,000?  Click here!”

Payday and title lenders target people of color, the working poor, and the elderly and disabled who are likely to have a fixed income. Small business owners are also targets, as they may need cash flow to meet payroll or deal with emergency repairs.  The fastest growing target groups are young adults who have student loan debt and are financially inexperienced, as well as those making over $100,000 who may have long term savings but no liquid assets for emergencies.

One previously prime target for predatory loans is now safer, thanks to the federal Military Lending Act of 2015.  This law protects service members and their dependents from predatory lenders, capping loans at 36% APR.  This came into effect as the Department of Defense recognized how many service members had weak credit scores because of predatory loans (which also put their security clearance at risk).

The costs of predatory lending are significant.  $214 million is taken out of the South Carolina economy annually as residents spend on lenders’ fees and interest payments.  According to a study in Population Health, borrowers face poor health symptoms and outcomes compared to non-borrowers.

Representatives from these lenders will argue that they play a role for people with low credit who aren’t served by traditional financial institutions.  The majority of borrowers – 69% – seek their first loan for recurring expenses such as rent/mortgage (10%), food (5%), or other expenses like utilities, car payments, or credit card payments.

But there are alternatives to predatory lending that exist or are in development.  Credit unions are non-profit organizations that exist to serve their members and often provide a safe place to borrow at reasonable rates.  Self-Help Credit Union is one such entity in Greenville.  Thanks to philanthropy making contributions and putting money on deposit, Self-Help is able to provide very low interest emergency loans. In fact, with support from St. Anthony of Padua, Self-Help is developing a fund that will allow people to borrow at very affordable rates.

Still, the biggest help to South Carolina families would be policy change.  Representative J.A. Moore from Hanahan joined GPP members to report on SC H4749, a bill to address predatory practices in lenders and for-profit colleges.  Representative Moore acknowledged that his goal was to begin the conversation on this topic in the legislature and to stimulate the establishment of a coalition to address predatory practices in the state.

Kerri Smith shared that in states that passed policies to protect residents from predatory lending, coalitions with heavy involvement from communities of faith led the way.  Many churches feel that these high APR loans are counter to the biblical condemnation of usury, and they have united for policy change.  Developing a similar coalition can help potential policy change get traction in South Carolina, as well.

So what can members of GPP do?

If you are concerned about or interested in change in lending laws, contact your legislator to let them know.  Share information with friends and family about predatory lending in our state – many people are unaware and shocked to learn that loans with 520% interest are allowed here.

As the conversation continues in Columbia related to SC H4749, we will let you know how to be plugged in, should you wish to learn more or take action.

Special thanks to Deborah McKetty of United Way of Greenville County for moderating our program. 

Read Greenville Business Magazine for one Greenvillian’s experience as a victim of a predatory loan.