Ethical Factors in Payday and Car Title Loans in South Carolina

DATE:  May 1, 2019 
VENUE: USC Hospitality Center. Hilton Head, Room 103

*Chairman Gordon Haist expressed appreciation to Gerry Schroeter, Neil Funnell, Isam Sakati and other committee members for the year’s programs and then introduced the presenters: 

*James Copeland, chief enforcement attorney of the S.C. Department of Consumer Affairs, explained that the 1974 Consumer Protection Code governs what is called “supervised lending,” or non-depository lending. It requires lenders doing more than $150,000 worth of business annually to register with the state. However, the state has no usury laws and interest rates are not capped on payday and car title loans. 

Before 1982, South Carolina capped interest at 36 percent for small loans. Then the state deregulated rates to allow the market to set them. Currently, rates start at 39% and range up to 600% on secured (car title) loans and start at 37% and range up to 780% on unsecured (such as payday) loans. Mr. Copeland said that customers buy various goods on credit at up to 49% interest rates, making the point that customers are willing to pay such interest. 

Car title loans require lenders to make a “good faith effort” that customers have an ability to make required payments. They also have to tell customers what the loans are going to cost them under various circumstances and give them written material on the subject. Payday loans are capped at $550, and a 2010 law prohibits new lending to customers with outstanding loans or missed payments. Those lenders also have to disclose information about costs. 

The state’s number of these “supervised lenders” has increased from 2,429 in 1989 to 5,161 in 2015. In 2014 South Carolinians entered into 1,565,961 transactions for such loans totaling $2,361,560,291. 
“There is a legitimate market for these lenders and they are legitimate businesses in South Carolina,” Mr. Copeland said. 

*Fred Leyda, administrator of Beaufort County’s Department of Human Services and chairman of the county’s Human Affairs Alliance, and Ben Boswell of his staff, described the demographics of the population using payday and car title loans. A high percentage of customers have no college education and income of less than $40,000. Typically, they are renters, and many are disabled in some way or unemployed for other reasons. African Americans and Hispanic migrant workers are a high percentage of the customers. Most are parents. Most are unmarried. 

“Sometimes people are blinded by life,” he said. For example, a registered nurse with a daughter in private school, had to help her mother who lingered for many months after a diagnosis of terminal cancer. The nurse’s savings were depleted through the care of her mother, and then the recession hit. She found herself in a cycle of payday loans. As soon as she would pay off one loan, the lender would have another loan check ready for her. She found herself in a deeper and deeper financial hole. 

“What can be done?” Mr. Leyda asked. “It’s worth noting that the military are not allowed to take out such loans,” he said. 

*Ben Boswell presented maps showing which states allow such lending businesses and which do not. In general, in this country, it is the states with poorer populations that have payday and car title lenders. 

*Accountant Dave Mortimer, program chair and a former New Jersey elected official, gave a brief definition and overview of ethics in our society and then gave an example of the kind of person drawn into the payday and car title loan companies.  Someone living paycheck to paycheck is driving home from work on Monday when his car breaks down. It needs a $100 repair job. The driver needs to buy groceries. He also needs to pay a utility bill on Wednesday to avoid a disconnection and an eventual reconnection fee, maybe even a deposit to get power turned on again to his house. He has no credit card, savings or personal acquaintance to whom he can turn to borrow money or arrange a ride to work. His credit score would prohibit a loan from a bank. If he wrote a check that bounced, the car mechanic and the bank would charge a fee. 

Where does he turn? To a lawful, regulated and licensed payday or car title lender. 

*Members of the audience made comments and offered questions: 

• In wealthier states, people in such situations go to informal lenders such as shopkeepers whose transactions are not regulated at all.
• Fifty-six percent of borrowers default, and they can roll their loans over as many as six times, building up the interest and fees they owe.
• Is there a movement of any kind to pass legislation to cap the interest rates? The answer was no.
• It is not right for government to cap the rates. The market must do it.
• What we really need is to figure out how to keep the desperate victims of these situations from falling into the financial traps they find themselves in.

This was an education for most of us regarding the problems associated with Ethical Factors in Payday and Car Title Loans in South Carolina.  Our sincere thanks to Jim Copeland, Fred Leyda, Ben Boswell and Dave Mortimer for clarifying and opening the discussion on this very controversial topic.  Thanks also to Betsy Doughtie for suggesting and coordinating this Seminar, Gordon Haist for Moderating and, as per usual, Fran Bollin for her faithful note-taking and outstanding summary of our meeting.