"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. 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% per annum – and then refinance the principal repeatedly so the payments of 'interest' – or what illegal loan sharks would call the 'vig' or 'vigorish' – never stop coming," according to Davis.
"And in doing so they often use unscrupulous marketing tactics such as mailing live checks that, once endorsed and deposited to someone's account, become very expensive loan obligations. These business practices intentionally prey upon South Carolina's most economically vulnerable citizens and need to be stopped."
A study by Coastal Carolina University's Edgar Dyer Institute for Leadership and Public Policy estimates that in 2022 more than 400,000 South Carolinians had installment loans that were more than 60 days past due.
And data provided by the South Carolina Board of Financial Institutions reflects that in 2021 and 2022, over half of all installment loan volume came from loan renewals.
Previous efforts have focused on capping the annualized rate of interest on non-conventional loans at 36%.
Davis is going a different route. Instead of limiting interest rates -- which many believe isn't the government's business -- his legislation focuses on outlawing predatory practices.
It would require an analysis of the borrower's ability to repay and prohibit a loan if the borrower can't pay. Davis also seeks to forbid flipping some types of loans and flipping others beyond a limited number of times.
The harm in 'flipping' or renewing loans is that interest is highest at loan origination, so any payments made in the early months of the loan go entirely to interest. When loans are flipped, they include new fees, insurance premiums along with the original loan proceeds, thus creating a never-ending cycle of debt.
Davis' effort is backed by the South Carolina Fair Lending Alliance, a coalition of faith leaders, non-profits, former payday and installment loan borrowers, and other citizens.
"We know that these high-cost, predatory loans not only impact borrowers but also their families, employers, non-profits and the state economy," alliance Lead Organizer Susan Stall said. "Data shows that these loans are causing extreme financial distress from delinquent debt, loss of the family vehicle and bankruptcy."
Davis' approach can put teeth into efforts to reduce predatory lending practices without running afoul of free enterprise and without unfairly limiting businesses that help people otherwise ineligible to borrow money. His legislation promotes fair lending while protecting consumers.
-- Times and Democrat. February 3, 2024.