A few days before Christmas, a single mother sat across my desk panic-stricken. She was due in traffic court the next day for a $300 violation and feared she would wind up in jail unless it was paid, leaving her son home alone over Christmas. She got the loan and her son had his mother during Christmas.

These stories are not unusual. In fact, many of my customers come to me as a last resort because life has hit them in the face and there’s nowhere else to turn. They’ve tried the banks and credit unions and have been told no. Many have maxed out their credit cards. If I don’t help them, no one will.

Yes, to most borrowers, payday loans are a lifeline.  Unfortunately, some legislators and media like to focus on the tiny percentage of customers that inappropriately use the service.

COLUMBIA — The South Carolina House gave overwhelming approval Wednesday to a bill aimed at preventing residents from being trapped in a cycle of debt through payday lending.

The proposal, approved 93-16, prevents consumers from taking out more than one loan at a time, up to $600.

An online database — which must be up by Feb. 1, 2010 — would instantly report when a loan is made. Lenders must check it to ensure customers don’t have outstanding loans elsewhere.

In South Carolina, lenders charge $15 for every $100 borrowed on a two-week loan.

The bill requires the industry to let customers go into an extended payment plan if they can’t meet that deadline, without incurring any extra fees.

The bill requires another perfunctory vote in the House before heading to the Senate.

While this is a strong consumer protection bill, unlike a 36% rate cap, it leaves the industry in a position to continue serving its customers.  

No one in South Carolina is seriously suggesting banning the practice here, but the currently proposed bill has no real substance to it and fails to address the key problem of usury whatsoever.

Of course, that’s not true.  There are people proposing a 36% rate cap, which is in effect a ban.  See the story below about stores closing in New Hampshire.

The General Assembly is currently considering consumer reform legislation involving payday loans, a service many South Carolinians use to help cope with personal financial difficulties. If consumers encounter an emergency expenditure, a payday loan is sometimes their only option. Banks and credit unions generally do not offer these kinds of low-dollar, short-term loans, especially to those who have weak credit histories.

The reform bill is sponsored by Speaker Bobby Harrell, R-Charleston, and co-sponsored by 74 other House members. It sets up a tight set of rules under which payday lenders must operate, including: limiting consumers to one loan at a time, enforced by a new statewide database; restricting the amount a consumer can borrow at a given time by setting a loan cap; offering an extended payment plan, with no additional fees, for consumers who need more time repaying a loan; and instituting stricter licensing requirements for Internet lenders.

Plain. Simple. Effective.

Critical resources, including the time and attention of S.C. lawmakers, should be focused first and foremost on rebuilding our economy, mitigating the rising unemployment rate and diminishing the level of poverty in the state.

Banning payday lending — or even pursuing an effective ban through the imposition of a 36 percent annual percentage rate (APR) cap on payday lending fees — will not alleviate these problems. Poverty and financial instability — especially among African-Americans — is not a result of the payday lending industry; it is a result of an extensive list of statewide deficiencies including health disparities, a lack of employment opportunities, crime and poor public school performance.

Opponents of the payday advance industry tend to paint all borrowers with the same broad brush — emphasizing anecdotal stories describing payday lending customers as poor, uneducated (and often minorities) in cycles of debt. In reality, the industry’s national data show the average payday loan customer has an annual income of $41,000 and has some college education. Furthermore, among households within a one-mile radius of a payday advance store, 63 percent of the households’ occupants are white, and 50 percent own their own homes.

Assemblyman Mitchell is more in touch with his constituents than the so-called “consumer” groups that think they know what’s best for everyone.

The House Labor, Commerce and Industry Committee takes up regulations for the industry Tuesday. The bill is on a fast track with most of the House’s members signed on as co-sponsors.

The bill prevents consumers from taking out more than one $600 loan at a time and requires the industry to check a database before making loans.

The database would be paid for through fees on the industry. Critics say that borrowers should have to wait a week before taking out a second loan.

Shutting down the short-term payday loan industry only forces these borrowers to resort to less-desirable and more-expensive alternatives to make ends meet.

Contrary to legislators’ claims, a Dartmouth College study found that a 2007 ban on payday lending in Oregon hurt borrowers who were forced to turn to more expensive alternatives like bounced checks, overdrafts and credit card cash advances.

The episode plays out as Haley lines up votes in a bid to become chair of the Labor, Commerce and Industry Committee, where last year she had shepherded the payday lending bill and saw it killed by leadership. She thinks Harrell is miffed at her for pushing efforts for more recorded votes on legislation.