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Where does debt come from? How does it get so out of hand? And why is it such a difficult topic to discuss?On South Carolina Public Radio's InDebted, host Scott Morgan explores the issue of debt in the Palmetto State, including medical debt, student loan debt, short-term loan services, financial literacy, and more. According to research by the Urban Institute on the amount of personal debt burden across the U.S., eight of the top 50 counties with the most debt were in South Carolina, with more than half of the residents living with excessive debt. Join us for a deep dive into the factors that make our state one of the worst places for debt in the country and the stories of real South Carolinians living in this ecosystem of debt.Interested in sharing your personal story with debt? Learn more about our InDebted Profiles series here.

The lenders, the lobbies, and the fight for a 36% rate cap in South Carolina

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This article is part of the series InDebted — South Carolina Public Radio's deep dive into the ecosystem of debt in the Palmetto State.

South Carolina has a rather unflattering reputation when it comes to short-term lending.

“We have a number of high-cost lenders headquartered in our state,” says Susan Stall, program director of a faith-centered community service nonprofit called Village Engage in Greenville. "Sometimes we're called the belly of the predatory lending beast. They are a very strong well-funded special interest.”

Short-term, small-dollar lenders — auto title lenders, payday shops, installment lenders — are collectively, colloquially, referred to as the payday industry, even though payday loans are an entirely separate thing (see our explainer on different types of short-term loan products).

But call them what you like, these lenders do indeed have a strong lobby in South Carolina. Browse through Open Secrets.org and you can keep a running total of how much money the payday industry has given this state’s US House and Senate members over the years.

Or thumb through the online pages of the South Carolina Ethics Commission. Do a keyword a search of, say, “title” and see how many entries featuring auto title lenders come up. Admittedly, “title” doesn’t always mean title lenders. Sometimes it refers to mortgage or land title companies, but there are still plenty of contributions from title lenders to candidates to go through.

Stall says all these contributions buy a lot of influence.

“These lenders are powerful and well-funded,” she says. “This industry has historically made huge donations— and this is across the aisle. This is to all candidates of all parties, it's not just one party.”

Hundreds of entries, thousands of dollars have been sent over the years to state senators, House representatives, city council members — contributions, across the political party spectrum, at every level of office.

Something all candidates have in common, no matter what they represent is that political campaigns are not cheap. Stall says any money that comes in is welcome, but that that gives small-dollar lenders a good in with legislators.

At the moment, the small-dollar lending industry’s lobbying firepower is on full display at the statehouse. The Senate Labor, Commerce, and Industry Committee is hearing arguments over whether to cap interest rates from nonbank financiers like installment lenders at 36 percent — based on the limits set by the federal Military Lending Act.

South Carolina lenders can essentially charge whatever interest they want on money they lend. And lenders say that’s necessary, given the credit risks they take when lending to people who don’t otherwise qualify for loans.

At a March 1 hearing before the State Senate Commerce, Labor, and industry Committee, Sen. Kent Williams (D, 30th) asked the following question of Dan Walters, president and CEO of Credit Central, an installment loan and tax service company with 36 locations in South Carolina and more stores in six other states:

“So you're telling us that at 36 percent APR you couldn't stay in business?”

To which Walters answered, “Yes, sir. I could not make a profit on loans less than $2,500. The risk is too great [as is] the loss is associated with that risk.

Walters said the average loan his company makes is $1,000

Walters’ argument that lenders making small-dollar loans would be driven from South Carolina should a 36 percent interest rate cap become law is the small-dollar lending industry’s largest argument against the cap.

Walters et al. posit that lending money to clients with credit scores below 600 (a typical customer for his business) is just not financially feasible.

A 2020 report published by the Federal Reserve backs that claim up, saying that loans below $2,530 could not turn a profit for the lender at 36 percent interest. On the other side of this argument is a rebuttal by Georgetown University finance and bankruptcy law professor Adam Levitin, which states in unambiguous terms that the Fed report was deeply flawed.

But while lenders and lawmakers, lobbyists and rate cap proponents debate in Columbia, it should be noted that the effort to rein in rate caps is a bipartisan one, at the House and Senate levels.

House Representatives Gilda Cobb-Hunter (D, 66th) and Jerry Carter (R, 3rd) coauthored the bill for the 2022 South Carolina House session that would set a 36 percent rate cap. That bill got no traction last session in the House.

This session, the matter is being taken up in the Senate, where Republican Katrina Shealy (23rd) and Democrats Brad Hutto (40th) and Kevin Johnson (36th) are the lead sponsors of Senate Bill-518.

At the end of the 2022 session, I spoke with Cobb-Hunter about her hopes for the legislation.

"And so I think there's been a sea change as far as awareness of how damaging, uh, these kinds of entities can be," she said. "And there's more interest in trying to not put them out of business, because I maintain that any legitimate organization that is in business legitimately and not trying to take advantage of people ought not be afraid oversight... And so I think it will be good for business. I think it will be good for consumers.”

Scott Morgan is the Upstate multimedia reporter for South Carolina Public Radio, based in Rock Hill. He cut his teeth as a newspaper reporter and editor in New Jersey before finding a home in public radio in Texas. Scott joined South Carolina Public Radio in March of 2019. His work has appeared in numerous national and regional publications as well as on NPR and MSNBC. He's won numerous state, regional, and national awards for his work including a national Edward R. Murrow.