South Carolina still hotbed of cash advance lending

The payday loan industry has been quite profitable during the last five years as the number of stores has grown to more than 22,000 nationally. Some 40 states regulate the practice of payday loans, but others do not. A few states have banned the practice altogether, and as this continues, the stores tend to flock to states where they are welcome. Once such state is South Carolina.

Payday loans are illegal in Georgia, and North Carolina recently made payday loans illegal. As the stores have closed in those states, they have sprung up in increasing numbers in South Carolina, a state that now boasts more than 1100 such stores. These stores specialize in expensive, short-term loans of two weeks’ duration with interest rates that may be as high as 391% annually. The state does have a few restrictions; loans are capped at $300 and borrowers may take out only one loan at at time from one store. Observers note that many borrowers who are unable to repay their loans simply take out another one, using the money from the second loan to pay the first one. That keeps them in an endless cycle of debt, as they keep taking out new loans to pay the existing ones, all at nearly 400% interest.

Many stores in South Carolina have sprung up near the borders of the two neighboring states where the lending is illegal, as visitors from Georgia and North Carolina come to borrow money. The state is so far reluctant to do anything about the loans despite the fact that South Carolina has a relatively underpaid workforce, which makes SC citizens prime candidates for the expensive lending. The largest payday loan company in the United States, Advance America, calls South Carolina home, and the legislature is undoubtedly not interested in alienating a local business that employes local citizens.

But supporting businesses that lend money to the poor at 400% per year isn’t exactly a good idea. Studies show that some 90% of payday loan customers are repeat customers, and there is something fundamentally wrong when a state’s citizens find it necessary to borrow money over and over at such high rates. A better alternative would be for the legislature to work with banks and credit unions in order to provide incentives for them to offer payday loan alternatives. In some states, such as Ohio, alternative loans offered by credit unions have done a lot to break borrowers of the expensive habit of taking loans from quick cash stores.

There is a small movement afoot in South Carolina to at least look at the existing law. Proposals include a database of active loans to make sure that no one has more than one loan at a time and perhaps a “cooling off” period during which a borrower could change his or her mind and return the money with no fee. In the meantime, lenders who offer expensive, short term cash advances in South Carolina are doing very well, indeed.

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