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High-Cost Lending in South Carolina Before and During COVID and the Way Forward

High-Cost Lending in South Carolina Before and During COVID and the Way Forward from @prosperitynow
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The public health crisis brought about by the COVID-19 pandemic in South Carolina has resulted in   197,000 cases and more than 4100 deaths so far, while also wreaking economic havoc. Unemployment rates have skyrocketed, the need for public assistance is ballooning and more than a quarter of households in the state now face the threat of eviction or foreclosure. The crisis has particularly affected communities of color, which are experiencing more deaths and infections as well as  economic disaster above and beyond what White communities are facing.

This is yet another crisis that could force vulnerable South Carolinians to turn to predatory financial products–like small-dollar payday loans to help them make ends meet–that will cost them dearly in the long-run. The Coronavirus Aid, Relief and Economic Security (CARES) Act enacted by Congress earlier this year to provide unemployment aid, foreclosure and eviction moratoriums and other relief to help households weather the COVID crisis, along with reduced household spending, has slowed the payday lending market for the time being.

But with the uncertainty that COVID brings, important elements of the CARES Act expiring and no new stimulus relief forthcoming because of a congressional impasse, there is a concern that far too many people will start turning to these products. Payday lenders and auto title lenders are aggressively advertising their products during the pandemic. There is reason for concern, if we look at the 2008 housing crisis as a recent example of how consumers respond to these pushes in times of economic hardship–without support like the CARES Act. 

To make matters worse, the Consumer Financial Protection Bureau (CFPB) repealed a rule passed in 2017 that would prohibit payday lenders from offering loans that consumers are unable to afford once implemented. The bureau chose to do this in July, in the middle of the current crisis.

Payday Lending in South Carolina

A few states have taken steps to protect consumers from these products during the pandemic. However, South Carolina is not one of them, nor are we one of a handful that prohibit payday lending outright.  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.

All of this has resulted in  loans that often carry triple-digit interest rates. In “Easy-In, Impossible Out: How High-Cost Lending Devastates South Carolina Communities,” the South Carolina Appleseed (SC Appleseed) Legal Justice Center 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 like longer-term installment loans are deregulated in South Carolina. That often makes these products unaffordable for consumers, affecting a family’s short- and long-term financial security.

Solutions: What South Carolinians Should Do to Address Predatory Products

South Carolinians deserve better. The time has long passed for policymakers in the state to listen to faith and community leaders across the political spectrum and begin regulating these predatory products to protect consumers. The pandemic will only exacerbate the problem, leaving too many people vulnerable to predatory lenders and shining a light on the hardships faced by families and businesses that use these products.

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. According to a report released by the Center for Responsible Lending (CRL) there is a strong appetite for regulation during the COVID-19 pandemic. We must seize on this momentum and build a campaign that will protect South Carolina businesses and families.

SC Appleseed’s Easy-In report outlines several policy recommendations that work toward this goal.

These include:

  • Enforcement of laws like South Carolina’s “ability to pay” standard and provisions related to repossession abuse.
  • The funding by the legislature of a consumer protections division housed in the attorney general’s office, to make it easier to go after unlawful, out-of-state lenders.
  • The enactment of a 36% interest rate cap on payday loans.
  • The development of more employer-based lending models to offer employees more affordable lending opportunities.

In addition to defining policy priorities, SC Appleseed is helping to establish a coalition to advocate for a safer, high-cost lending market in South Carolina. One of the first priorities of this coalition will likely be to lead the charge for the introduction of a 36% rate cap bill in the legislature. At the federal level,  we encourage everyone to advocate for the Veterans and Consumers Fair Credit Act (H.R. 5050/S. 2833), a bill that would establish the 36% cap at the federal level. Please contact your senators and representatives and ask them to support the legislation.  

As we are 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 high interest rates and fees merely because they are facing a financial crisis.

If you have additional questions about South Carolina’s efforts to address high-cost lending, please contact Sue Berkowitz (SC Appleseed)  at [email protected]  or Whitney Barkley (CRL) at [email protected].

Originally posted by Prosperity Now on 2020-11-16 18:00:00

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