Written by Wanda Davis, CommunityWorks Business Development Officer

Payday loans are typically defined as a short-term, high interest loans. Generally, these loan products are for $500 or less and targeted toward individuals who have low credit and are financially strapped. The term ‘payday loan’ was coined because the payments for these high interest loans are typically due your next pay day. Payday loan consumers are often in need of quick cash for unexpected life expenses, yet they find themselves in more debt than they began with due to the high interest rates.

Thankfully, some states have taken steps to protect consumers from these products during the pandemic, some even prohibiting payday lending all together.  However, South Carolina is not one of them. In fact, lenders in the state of South Carolina can charge any interest rate they want, up to 950%. In addition, with deregulated interest rate caps in our state consumer laws, we have the added problem of high-cost consumer finance and auto title loans.

The lack of lending regulations in our state have resulted in loans that often carry triple digit interest rates. Many refer to this increasing issue as EASY IN, IMPOSSIBLE OUT.  Legal Justice points out that many South Carolinians who use these products get caught in a debt cycle that significantly compromises their financial security. Unfortunately, safer options are deregulated in South Carolina, which often makes products unaffordable for consumers, affecting a family’s short and long term financial security.

For years, legislators in South Carolina have been introducing bills to regulate predatory lending products.  In 2020, a coalition of faith leaders, community organizations and ordinary citizens was able to demand a hearing on predatory lending. I too, was honored to be a part of this. This group is known as the South Carolina Fair Lending Alliance (SCFLA).

SCFLA has discovered that a strong appetite for lending regulation was born during the COVID-19 pandemic.  With the help of the community, we are working to capitalize on this momentum and build a campaign that will protect South Carolina businesses and families.

There are several policy recommendations that work toward this goal:

• Enforcement of laws like South Carolina’s ability to pay, standard and provisions related to repossession abuse.
• The enactment of a 36% interest rate cap on payday loans.
• Development of more employer-based lending models to offer employees more affordable lending opportunities.

SC Appleseed is helping to establish a coalition to advocate for a safer, high cost lending market in South Carolina.  At the federal level, please encourage everyone to advocate for the Veterans and Consumer Fair Credit Act, a bill that would establish the 36% cap at the federal level.

As reminded in Proverbs, “Do not rob the poor because they are poor.”  South Carolina must do more to ensure that our struggling families, particularly families of color, are not robbed by interest rates and fees merely because they are facing a financial crisis.

If you’re interested in joining our mission to cap the interest rates in South Carolina, subscribe to the SCFLA’s email list here: https://capratesc.com/. You can also learn about our small business loans or downpayment assistance programs.