Gov. Mark Sanford should have signed a bill that would have imposed some minor restrictions on payday lenders in South Carolina. Instead, it’s up to the Legislature to override Sanford’s veto of modest controls on an industry that sometimes preys upon South Carolinians who are living on the margins.
In fact, this bill does not go far enough. Previous attempts to regulate this industry were preferable, but all of them have failed. So this bill probably is about as good as it’s going to get in terms of payday lending restrictions in South Carolina.
Already, most states and the federal government have regulated this industry. Some states, including Georgia and North Carolina, have banned the practice. It’s past time for South Carolina to put the reins on payday lending, as well. The Legislature should override Sanford’s veto of these minimal regulations.
Payday lenders offer short-term loans, typically for $300 or less. The lenders charge fees equal to annual rates that in some cases exceed 700 percent. Some of these lenders prey on people who are out of options, and the loans can create a cycle of debt that ends in financial ruin.
The lenders say they offer a service that’s in demand. Yet, although there’s no doubt people use payday lenders, there’s also room for reasonable regulation of this industry.
Sanford was wrong when he wrote in his veto message that payday lending is not “ripe for government regulation and control at the level put forth in his bill.” Limiting payday lending, he wrote, will force consumers to seek out less regulated or even illegal forms of borrowing.
The regulations this bill would place on payday lending would not force the lenders out of business — it simply would ensure the loans aren’t being used in a way that perpetuates a cycle of mounting debt that can cause financial catastrophe.
Under this bill, loans would be limited to $550; consumers would be prohibited from having more than one payday loan outstanding at any given time; a one-day waiting period would be established between loans for the first eight loans, with a two-day waiting period on any loans beyond that; a statewide database would be created to track who is eligible for payday loans.
Such rules certainly will not ruin the payday lending industry.
The proposed limit far exceeds that in previous attempts at regulation, and is above the industry-wide average for payday loans. It makes sense to prevent people from having more than one loan at a time — by definition these loans are small, short-term loans designed for emergencies. The waiting period is essential because it would prevent consumers from repaying a payday loan by taking out another payday loan, an action that creates the cycle of debt that worries many industry opponents and consumer advocates.
Sanford has, to a fault at times, been a rock when it comes to his principled stands against government regulation. This is one of those times. However, the Legislature has the power to override this veto, and it should do that. It should also remember that this bill leaves room for even stricter regulations in the future if these rules prove ineffective.