Consumer Law In the News

SC Senate Gearing Up For Huge Payday Lending Battle

It’s do or die time.

That’s what it looks like at the SC General Assembly this week, as the payday industry gears up for a Thursday hearing before a House subcommittee on a Senate bill that would come very close to putting a stop to the payday industry’s free ride thus far.

The bill (which, in my opinion, fails only in the fact that it stopped short of banning this industry) would limit the number of loans a South Carolinian could have outstanding at one time, put the onus on the lender to enforce that rule, and requires a seven-day “cooling off” period between loans.

As my law school buddy and co-teaching assistant (Professor Haggard’s ‘95-’96 Legal Writing class shout-out!) Senator Vincent Sheheen (D-Kershaw) recognized last year when he and Senator John Hawkins filed a class action suit against Advance America, these lenders know full well that their products are insidiously addictive. That’s why they aim those loans at low-income and minority citizens. They set up shop, not in the tony shopping centers that cater to nearby gated communities, but in the traditionally low-income portions of our nation’s cities and towns.

They wormed their way into utility offices, offering easy money to those who were desperate to keep the power on in their homes, and next to cable companies and grocery stores for similar reasons: everyone uses them, and usually it’s the low-income, lower middle class neighbors who struggle with these basic bills (a fact which may, interestingly, be changing rapidly in this day and age of $3.99 gas and rice rationing at the local Sam’s club).

When customers predictably can’t keep up with the crushing avalanche of bank drafts, they let loose collection tactics that include threats of imminent arrest and criminal prosecution, disclosure of the customer’s “status” as a “deadbeat” to his or her employers, family, and friends, and other clearly unlawful activity.

Side note: In South Carolina, such tactics are and remain unlawful thanks to a provision in the state’s Consumer Protection Code which extends similar protections to those offered in the federal FDCPA legislation, which only applies to third party collectors, to original creditors as well. But many states don’t have that kind of protection. And even though we do have the benefit of that rule, it doesn’t stop the overreaching and the harassment — it just gives citizens a means of recourse. However, most citizens who are impacted by this kind of behavior will never seek redress.

So what’s the solution? Senator Sheheen and his colleagues in the Senate have proffered a decent first step. The industry must not be allowed to intimidate the House committee members now with accusations of “conflict of interest.” There is no conflict of interest; the allegations are misleading and play to the public’s general misunderstanding of the role of a lawyer in a legal action — the lawyer is NOT a party to the suit he brings, though some would like to blame the legal profession for the fact that cases get brought. It’s a little like blaming the doctor who treats the patient for the fact of the car accident that brought the patient to the ER in the first place.

Contact your House representatives to express your support for this bill, which you can read in full here.

To get more information on how to contact your reps (and to find out who they are), visit this page from the General Assembly’s website.

© 2008 SC Bankruptcy & Consumer Law Blog.