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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.

InDebted: What if payday loans came with warning labels?

Cigarettes, alcohol, even jigsaw puzzles come with warning labels. But loan that can smother whole families do not. One USC professor would love to see that change.
Scott Morgan
South Carolina Public Radio
Cigarettes, alcohol, even jigsaw puzzles come with warning labels. But loan that can smother whole families do not. One USC professor would love to see that change.

Should high-interest loans come with warning labels?

“I think that would work,” says Dr. Ozgur Ince, a professor of finance at the University of South Carolina’s Darla Moore School of Business. “I think that would probably have a fairly big impact on people's propensity to use these products.”

In South Carolina, there is no limit on the interest rate a nonbank lender can charge borrowers for things like installment loans. You might have received a letter or two in the mail offering you a loan – often in the form of a check – for, say $2,500. If you flip the letter over, the payout terms are probably on the back (they do have to be somewhere), and they will probably tell you the interest rate is somewhere north of 300 percent. Sometimes very north of 300 percent. I’ve personally seen offers with interest rates quoted close to 800 percent.

Dr. Ince’s idea, to put warning labels on some of these financial products, is directed towards something he sees as “an epidemic” of misinformed, sometimes misled residents who live close to or beyond their means, turning to financial products that they can’t escape. The idea, he says, just needs official support.

“The equivalent of FDA doesn't exist in financial products” to warn us of the risks of borrowing, as product labels on cigarettes and alcohol packages do, he says.

“[But] I can easily see a situation where we could treat these products the same way,” he says. “Then every payday loan would have to come with a disclaimer that would have to say, ‘Warning, these products can cause you a financial loss and hardship.’”

Putting warning labels on certain financial products isn’t an entirely new idea. Federal regulators contemplated sticking warning labels on prepaid debit cards back in 2013, but the effort was more of an idea bandied by financial reformers and never got any actual traction at a legislative level.

In South Carolina, where the small-dollar lending industry has a strong, active lobby and the effort to mandate financial literacy education in school flops every legislative session it’s brought up, the odds are long that the State Legislature would consider tagging loan products with warning labels anytime soon.

If they were to talk about it, though, Dr. Ince would want legislators to know that he doesn’t want to squelch access to loans, especially if they can help new borrowers build their credit. He just wants them to come with an acknowledgement of the risks.

“We don't want to cut off young people from the financial industry and financial products,” he says. “It's very important to use them responsibly. One could make the distinction between a safe product and potentially more dangerous products.”

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.