Thursday, Apr. 17, 2008

House members must pass strong payday lending law

AS EXPECTED, ATTEMPTS are being made to water down a Senate-passed bill that would rein in payday lending and help borrowers escape a cycle of debt.

Members of a House subcommittee started early by stripping away a key element of the Senate bill that was aimed at helping borrowers. Last week, they took out a provision that would have limited the amount a borrower could get at once, based on income. Instead, they set the amount for one loan at a hefty $600.

As the Banking and Consumer Affairs Subcommittee, chaired by Rep. Nikki Haley, R-Lexington, continues its work — it will meet again Tuesday and could take definitive votes — it should reinstate the original language and approve the Senate bill as is or make it stronger. Making it more lender-friendly shouldn’t be an option.

Frankly, only a ban can guarantee payday lenders will no longer exploit consumers in our state. But that’s something lawmakers, for reasons we don’t understand, refuse to do. Short of that, they should still take great care to protect consumers.

That’s what the Senate set out to do when it approved tough legislation in late February. Senators approved rules that would at least provide consumers some good protections from these legalized loan sharks. They voted to limit loans to $500 or 25 percent of the income a customer would earn during a loan period — typically two weeks — whichever is less. Borrowers would be limited to one outstanding loan at a time and would have to wait seven days after paying off one loan before they could take out another. Also, lenders would have to check a database to see whether a borrower has an outstanding loan.

The seven-day cooling-off period and the limit on the number of loans a borrower can have at once should help keep people from being caught in a debt trap.

Lenders are now allowed to lend as much as $600 at a time to one borrower — in the form of two loans — and charge $90 in fees for a two-week loan, the equivalent of a 391 percent annual interest rate. There is no state monitoring to prevent borrowers from taking out multiple loans with other companies. There is no cooling-off period between loans.

Rep. David Mack, D-Charleston, a member of the panel studying the bill, said he wants to restore the provision removed from the measure, but lenders and supporters are aiming to further weaken it.

It’s imperative that citizens call their representatives, especially subcommittee members, to demand strong consumer protections. Much of the work in shaping laws gets done at the subcommittee and committee level. In addition to Reps. Haley and Mack, panel members are Reps. William Bowers, D-Colleton; Joan Brady, R-Richland; Grady Brown, D-Lee, and Phillip Owens, R-Pickens.

It’s lawmakers’ responsibility to regulate this industry, which they unleashed on consumers in the late ’90s. They failed to provide protections for consumers, many of whom can’t afford to repay the initial loan and resort to additional payday loans to pay off older ones.

The payday lenders have had their way with consumers for a decade now. It’s time lawmakers gave consumers a fighting chance.

To find out who your legislators are and how to contact them, go to www.scstatehouse.net and select “Find your legislator” on the left. Or call Project Vote Smart at 1-888-VOTE-SMART.