Fair lending advocates in South Carolina are rallying around a new bill aimed at limiting what they view as predatory practices often employed by high-cost lenders such as title, payday, and personal loan companies, whose exorbitant interest rates can leave customers mired in debt.

The bill, which was filed Tuesday by state Sen. Tom Davis (R-Beaufort), represents something of a new approach for fair lending advocates who had previously targeted the interest rates changed by lenders, which can run into the triple digits. Senate Bill 910 will instead target the business practices of the lenders themselves, which Davis and fair lending advocates see as predatory.

“In South Carolina, there are lenders that offer payday, installment, and auto title loans that mine and use personal data to identify, target, and then trap vulnerable South Carolinians in a cycle of debt,” Davis said. “These lenders’ cynical business model is to make loans to people who cannot afford them, collect interest payments from them at obscene interest rates — often more than 150 percent per annum — and then refinance the principal repeatedly so the payments of ‘interest’… never stop coming.”

Supporters of the bill will gather in the Statehouse rotunda for a press conference with Davis on Wednesday at 9 a.m., followed by a Senate subcommittee hearing at 10 a.m. The effort is backed by the South Carolina Fair Lending Alliance, a coalition of faith leaders, nonprofits, former payday and installment loan borrowers, and other citizens, which has been working since 2020 to enact consumer loan protections in the Palmetto State.

‘Preying on S.C.’s most vulnerable’

Earlier efforts backed by fair lending advocates in South Carolina have been focused on capping interest rates on consumer loans at 36 percent, which would match the federal limit that protects active-duty service members. There are currently there no limits on the rates that can be charged by supervised lenders, and according to the South Carolina Fair Lending Alliance, people in the state regularly pay interest rates of between 200 and 500 percent.

“In this state, interest rates were deregulated in 1982, and so to change all of those statutes would have some impact on consumers,” said Kerri Smith, regional president for South Carolina at Self-Help Credit Union, which is a member of the S.C. Fair Lending Alliance. “But even at a 36 percent cap loan, if somebody's given that loan and they don't have the ability to repay, and it's continually rewritten, it's still a cycle of debt. So when we really looked at the business model of the industry, we felt like that while the interest rate is extremely predatory, the way to make the biggest impact for consumers is to look at these practices.”

Those practices, Smith said, involve lenders writing loans to customers who they know cannot repay them. Like reputable mortgage and credit card companies that have rigid underwriting procedures, the new bill will try to ensure that customers have the ability to repay the loans they take out. The bill will also focus on ancillary products like added-on collateral protection and insurance premiums that can increase the monthly minimums paid by consumers.

“They have all these ancillary products, and all the interest is added up front. So when the borrower starts making payments, they're not paying on the principal at all until much later in the loan,” Smith said. “So what these lenders are doing is telling folks is, make your payment for three months, and then we'll rewrite the loan. The problem is for those three months, all they're paying is interest in on fees. And then when they're rewritten, more fees are added, more products are added. So it really does create this cycle of to where they never get to the principal payment.”

Davis specifically pointed out the practice of loan companies mailing live checks to individuals —who then become obligated to the loan if they deposit the check. “Once endorsed and deposited to someone’s account, (they) become very expensive loan obligations,” he said. “These business practices intentionally prey upon South Carolina’s most economically vulnerable citizens, and need to be stopped.”

400,000 in S.C. face overdue loans

A recent study by Coastal Carolina University’s Edgar Dyer Institute for Leadership and Public Policy estimated that in 2022, more than 400,000 South Carolinians had installment loans that were more than 60 days past due. According to the South Carolina Board of Financial Institutions (BOFI), over half of all installment loan volume in 2021 and 2022 came from loan renewals. Between 2019 and 2021, 40 percent of all payday loan borrowers took out between six and 12 loans per year, the BOFI study found.

“Almost a half a million South Carolinians have installment loans that are 60 days delinquent,” said Smith of Self-Help Credit Union, which primarily serves customers who have been pushed out of traditional financial services — largely women, people of color, and those in rural or low-wealth communities. Smith is also challenging Rep. Ashley Trantham (R-Pelzer) in the June 11 Republican primary for the District 28 House seat.

“The impact of this is huge, because what we've seen on the ground is when a person can't afford the first loan, they'll go and get a second one,” Smith added. “And then when they can't pay the first and second loan, they go get a third loan. And generally by the time they get to me, they already have three of these loans.”

An earlier fair lending bill, Senate bill 518 — which would cap the interest on consumer loans at 36 percent — remains in the Committee on Labor, Commerce and Industry after being carried over to the 2024 legislative session. But there’s been no activity on that bill since Feb. 9, 2023, the day it was introduced and referred to committee. It’s proven difficult for fair lending bills to gain traction in the Statehouse because of the sway the lending industry has in South Carolina, an obstacle the new Davis bill is sure to face.

“It's going to be a Goliath effort to get this done, no matter whether you're addressing interest rates or you're addressing practices, because so many of these lenders are headquartered here. And there's a great deal of funding that is provided to elected officials. So there's a lot of political capital that the industry holds in our state,” Smith said.

“But I think consumers are 100 percent on our side. Polling that was done in 2022 showed that 77 percent of registered voters, whether they’re Republican, Democrat, or independent, agree with curbing predatory lending practices and capping interest rates. This is probably one of the more bipartisan issues where voters are concerned. So while we understand that it is going to be a heavy lift to get this legislation done, we believe that it is the will of the people that our legislature address it.”