S.C. Rep. Phillip Owens, R-Pickens, who made the motion for the changes, said the moves avoided needless government interference. But industry critics said Owens’ changes leave borrowers at risk of being trapped in a cycle of debt.

Lenders are fighting to maintain the law they won in the late 1990s that allowed them to operate in South Carolina, home of Spartanburg-based Advance America, the nation’s largest payday lender.

Georgia and North Carolina essentially have banned the industry. Most lenders have shut down operations in Arkansas after the state’s Attorney General warned lenders they would face the risk of lawsuits if they continued operating in the state.

Owens and four other members of the House Banking And Consumer Affairs Subcommittee approved the changes to a bill passed Feb. 19 by the S.C. Senate that would have severely limited payday loans.

Instead, the House Banking and Consumer Affairs’ changes make the bill more closely resemble the current law supported by lenders. It allows a company to loan as much as $600 at a time to a borrower and charge $90 in fees for the two-week loan, the equivalent of a 390 percent annual interest rate.

The Senate bill installed a lending cap: It requires companies to limit the size of each loan to no more 25 percent of a borrower’s gross income for the two weeks of the loan. Those earning more than $2,000 over two weeks would be limited to a $500 loan, the maximum allowed for any borrower.

Owens’ change increased the cap to $600, and stripped the income test, saying the state should defer to the judgment of borrowers and lenders.

“The business man is not going to be irresponsible in his business practices — in this case, the lending business. He would like to get repaid,” Owens said.

Sue Berkowitz, director of the South Carolina Appleseed Legal Justice Center in Columbia, said the current law is extremely rational for lenders. They can reap more in interest than the loan’s principal within four months if they can draw the borrower into a series of loans.

However, she said consumers are borrowing when they are facing cash emergencies — moments when they are highly irrational. And then the trouble begins.

For example, she said a borrower might get a $600 loan, owing the lender $690 in two weeks — frequently an amount they are unable to repay. When the first loan is due, borrowers often get a second loan to repay the principal, dig into their cash to pay a second $90 lump of interest and begin a cycle of debt.

The subcommittee is expected to hold another hearing next week.

Source:http://www.thestate.com/business/story/372210.html