State Senate Bill 910 , currently coursing its way through subcommittee hearings in Columbia, looks to define certain business practices of installment lenders as unfair trade. The bill’s largest points focus on marketing tactics such as the mailing of unsolicited live checks that trigger high-interest loans, as well as the frequent renewal of loans.
Consumer advocates, who support S-910, say these practices trap vulnerable borrowers in bad loans that are difficult to escape. Because installment loans are fee-up-front loans that carry no compounding interest, they are marketed as a straightforward solution to short-term financial problems.
In reality, consumer advocates argue, these loans are just as commonly pitched as lifestyle loans – loans that help fund holiday presents or other non-emergencies. Advocates also argue that lenders pressure borrowers to renew their loans, early and often; thereby adding more and more dollars to the principle amount borrowed while also adding new up-front fees for each renewal as a form of de facto interest.
Representatives of the lending industry make their case that installment loans are far more manageable than the ever-popular credit card, which they argue comes with compound interest, penalties, and hidden fees – something installment loans do not have.
Industry representatives also say that lenders’ focus on renewing loans is a normal business practice – lenders sell loans and need volume, says Dan Walters, president and CEO of Credit Central, and the industry’s main spokesman at the Senate subcommittee hearings resuming this week; therefore, lending stores encourage employees to renew installment loans.
Former installment lenders say that the pressure to sell renewals could get intense, and that this pressure started early.
“They sold it hard,” says Shandalyn Isaac, a former payday/auto title/installment loan agent in Barnwell County, of the store managers’ push for employees to sell renewals. Isaac says the selling came as soon as three payments in, and that when customers regularly refinanced their original loans, they got further and further from being able to bring down the principle – which kept growing as renewals occurred.
Critics of the short-term lending industry call this practice “churning.” Isaac says that store managers would call it “a second payday” because they would get bonuses based on how much money their stores brought in – whether from new customers or refinancing customers.
While Walters defends the practice as a reasonable reward for employees and managers, consumer advocates like Ma’ta Crawford, of Greenville, say that the installment lending industry in South Carolina depends on poor, undereducated customers to thrive.
“They want marginalized communities where they feel like people are desperate to buy food,” Crawford says. “I don't think every short-term loan place needs to be shut down, but I think something needs to be done.
