Cash Advance Loans

State Sen. John Hawkins, R-Spartanburg, is gambling that his comparison of the payday lending industry to video poker will be a winning theme in the coming session of the South Carolina Legislature.

Mr. Hawkins now represents the plaintiffs in a lawsuit against the industry, a position that a spokesman for Advance America says puts “the people of South Carolina in an awkward position.”

That little bit of marketing language aside, hinting at a conflict while none has been established, we hope Mr. Hawkins’ fellow lawmakers will have the wisdom to consider putting the brakes on an industry that drives desperate people even deeper in debt.

Sen. Robert Ford, D-Charleston, introduced a bill in the last session to outlaw payday lending. In light of the industry’s demise in neighboring states Georgia and North Carolina, it was an idea we supported, or at the very least, to put more controls on the industry’s operations in our state.

Mr. Hawkins believed the attempt to close down payday lenders completely would be vetoed by Gov. Mark Sanford, he said. That led to his support of a compromise of regulation. (He has since decided that outlawing the industry is the best choice and will support legislation to that end.) Although a Sanford spokesman said the governor “gives every bill that comes to his desk fair consideration,” we don’t think a proposal to outlaw payday lending would have survived Mr. Sanford’s pen. In a 2006 Associated Press report on the governor’s meeting with the Silver-Haired Legislature, Mr. Sanford was quoted to say he would not even support changes in the industry, after a discussion in the statehouse on regulating the interest rates the lenders are allowed to charge. In his response to an AARP questionnaire on the subject of payday lenders, Mr. Sanford continued his theme of personal responsibility and consumer choice, although he noted the use of payday lenders was “a poor choice.”

At least Mr. Sanford has a choice. Most of those who patronize payday lenders don’t. While some do live beyond their means and dig a financial hole for themselves, more of them are undergoing temporary hardships or have a lack of education about financial matters. Some are simply desperate to make it to payday before everything falls apart. Their ages vary. AARP surveyed credit counselors in South Carolina, and found that as many as 50 percent of their clients over 50 were customers of payday lenders or firms that held postdated checks or vehicle titles as collateral for small loans.

Others are young, people who are in their first jobs or young parents with a baby on the way who are overexposed to the concept of easy money and who get caught up in consumerism beyond their abilities to understand its responsibilities. One unplanned illness can devastate such a household.

The industry excuses its rates (around $15 for every $100 borrowed, resulting in an annual percentage of almost 400 percent) by comparing them to what banks charge for returned checks, apparently believing that despite what we’ve all heard, two wrongs actually do make a right. The returned check fees charged by banks are too high, but that doesn’t excuse interest rates that only get a troubled consumer even deeper in debt.

Although they certainly wouldn’t boast about it, there is probably even someone in your circle who has been a paycheck away from ruin. People don’t use payday lenders because they want to amass debt they cannot repay. They use them because they believe they have nowhere else to turn. Many are unable to get a conventional loan, either because of bad credit or no credit experience, or because they only need a small amount of money. And so they turn to payday lenders, who are more than happy to add yet another short-term loan to the consumer’s portfolio of financial problems. When the consumer can’t pay, a rollover loan just adds more interest to the accumulating debt.

A study by the Durham, N.C.-based Center for Responsible Lending said that of nearly 14 million loans in five states that did not have interest-rate caps for payday lenders, more than half of the loans were to consumers who took out 12 or more of the loans every year. The report on the study by CNN also noted that about a quarter of the loans went to borrowers who took out an astounding 21 or more loans every year.

We recognize that there are borrowers who do not meet the qualifications of traditional lenders. We understand as well that a couple of hundred dollars may be all that stands between them and no heat or no transportation to a job that no matter how poorly they are paid, they cannot afford to lose.

But people in those circumstances should not be at the mercy of an industry that makes its profits on the basis of their desperation.