Indicates Matter Stricken
Indicates New Matter
The Senate assembled at 11:00 A.M., the hour to which it stood adjourned and was called to order by the ACTING PRESIDENT, Senator WILSON.
The Annual Report of the Joint Legislative Committee on Tourism and Trade was received and ordered printed in the House Journal of Friday, March 3, 1995.
On September 26, 1994, The Joint Legislative Committee to Study Consumer Finance Issues was established pursuant to Act 572 of 1994. Senator Linda H. Short was elected chairperson. Other Senate members included Senator "Greg" Gregory, and Senator Darrell Jackson. House members on the committee were Representative Joseph Neal, Vice-Chairperson, Representative George Bailey and Representative Molly Spearman. Nonlegislative committee members were C. Dean Bratton, Director of the Consumer Finance Division of the State Board of Financial Institutions and Phillip S. Porter, acting State Consumer Advocate.
The Study Committee was charged with the task of studying the consumer finance laws in South Carolina as they relate to restricted loans, supervised loans, and sales finance contracts, and to specify the findings in a report to the General Assembly.
Findings relative to restricted loans, supervised loans, and sales finance contracts should be made:
• Whether an appropriate maximum finance charge, if any, shall be set;
• To what extent other charges shall continue to be authorized;
• To what extent refinancing and consolidation shall continue to be authorized;
• To what extent credit insurance shall continue to be authorized;
• Such other findings that the committee, in the course of its deliberations, shall deem necessary.
The eight member committee held its organizational meeting on October 3, 1994, and subsequently two all day public hearings were held on Wednesday, November 30, 1994, and Thursday, December 1, 1994.
The South Carolina consumer finance industry is currently divided into two classes of lenders: restricted lenders and supervised lenders. Restricted lenders are licensed pursuant to Chapter 29, Title 34 and operate under a rate structure provided by statute. Supervised lenders are licensed pursuant to Title 37 and may charge any rate of interest on loans, so long as the rate is within the maximum rate posted in the lender's office and filed by the lender with the Department of Consumer Affairs.
The consumer finance industry was deregulated in 1982 to encourage competition and provide flexibility within the industry. A portion of the affected lenders chose to remain within the confines of the existing legislation which provides statutorily dictated fees (an effective interest rate). Testimony, as well as legislation, indicates that the restricted lenders were expected to be the primary providers of loans under $1000.00, while the supervised (deregulated) lenders would provide consumer loans in excess of $1000.00. While some intersecting was anticipated, it was expected to be minimal. A small, but significant, number of supervised lenders are currently primarily active in the small loan area. Because of their deregulated status they can and do charge significantly higher rates of interest than restricted lenders. Records indicate interest rates between 120% and 126% are routinely charged by this small group of supervised lenders. Reports of maximum average interest rates charged by supervised lenders statewide are dramatically skewed as a result of the inclusion of this relatively small group of loan providers. The average maximum rate charged in 1993 with all supervised lenders included was significantly higher than was the rate charged when this small group was not included in the data. It is apparent that deregulation is beneficial and effective provided that loan amounts remain within the expected confines of the appropriate lender. However, when small loans are routinely provided by supervised lenders, the benefit is eliminated.
This committee recommends that loans under $600.00 must be regulated according to the statutory requirements provided for restricted lenders (Title 34).
The committee has had some difficulty obtaining information on the practices of the consumer finance industry and found it necessary to extrapolate information from the existing reports.
This committee recommends that current lender reporting requirements be statutorily amended to reflect the need for better statistical and analytical data. Further, this committee recommends that a systematic review occur 18 months from the effective date of any substantive changes in the current law, to determine the effectiveness and appropriateness of any changes which may be adopted. Further, this committee recommends that a second systematic review occur 30 months from the effective date of any substantive changes in the current law, to determine the effectiveness and appropriateness of any changes which may be adopted.
Debt collection practices have in many cases created significant hardships for the consumer. Harassment, while not the rule, occurs with enough frequency to warrant substantial changes in the present law.
This committee recommends that the Federal Debt Collection Act and the FTC Credit Practices Rule be expressly duplicated in South Carolina statute, with some modification, and apply to first-party as well as third-party transactions. It is further recommended that specific penalties for violations of this section be expanded. Unconscionable debt collection practices should be filed in writing with the office of Consumer Affairs for possible resolution thirty days prior to any court filing.
Restricted lenders are currently allowed to charge nonrefundable fees. These fees may be charged for the initial loan and each time a loan is renewed provided that renewal does not occur for a period of ninety one days. The issue of non-refundable fees has created an impetus for encouraging the consumer to renew frequently, a practice known as "flipping". This practice has resulted in small, relatively short term loans, continuing indefinitely with little hope of ever paying off the loan. The renewed loans frequently provide no additional funds for the consumer.
This committee recommends significant changes in the current law which will provide for refundable fees based on the rule of 78's or on a pro-rata basis and specific regulations controlling the number of renewals which can be made without providing additional funds to the borrower. This committee is convinced, based on the testimony and evidence presented at the hearings, that "flipping" of loans will be discouraged by this change. Adjustments to the current restricted lender rates are recommended in an effort to establish revenue neutrality.
The consumer currently has very little knowledge of his or her rights and responsibilities in this very complicated area of finance.
This committee recommends a brochure be created by the lending institutions stipulating the rights and responsibilities of both the lender and the borrower and further that this brochure be provided to the consumer at the time of the initial loan transaction. The lender should be assured that the consumer understands the information provided and should place particular emphasis on the appropriate method of filing a complaint.
Testimony at the public hearings indicated that often insurance is sold to consumers when there is no potential benefit available to the consumer.
This committee recommends the sale of insurance where no potential benefit exists be included as an unconscionable act.
This committee believes that the consumer finance industry provides a necessary and desirable service to the citizens of South Carolina. The risks inherent in this industry mandate flexibility in the regulations affecting business practices. However, no citizen of South Carolina should be subjected to unfair or abusive practices. We believe that the adoption of the proposed changes in Titles 34 and 37 of the South Carolina Code as proposed in "The Consumer Finance Act of 1995" will provide necessary and appropriate protection to the consumer, at the same time creating a positive business climate for the consumer finance industry.
This committee would like to express its appreciation to Kenneth Davis of Senate Research and Jay Johnson of Senate Banking and Insurance who assisted the committee throughout this study as legal advisors, and to Carleen McQueeney who served as Administrative Assistant to the committee. In addition, we express our sincere appreciation to representatives of the Consumer Finance Industry and to the consumer advocates who represented South Carolina Legal Services and Fair Share for the invaluable assistance they provided to this committee.
Senator Linda H. Short, Chairman
Consumer Finance Study Committee
JOINT STUDY COMMITTEE MEMBERS
Senator Linda H. Short, Chairperson
District 17 - Chester, Fairfield, Union and York Counties
Senator Greg Gregory
District 16 - Fairfield, Lancaster and York Counties
Senator Darrell Jackson
District 21 - Calhoun and Richland Counties
Representative Joseph H. Neal, Vice-Chairperson
District 70 - Richland and Sumter Counties
Representative George H. Bailey
District 97 - Dorchester County
Representative Molly M. Spearman
District 39 - Lexington and Saluda Counties
C. Dean Bratton - Dir. of Consumer Finance Div. of State Board of Financial Institutes
Post Office Box 11778, Columbia, South Carolina 29211
Phillip S. Porter - Acting State Consumer Advocate
S. C. Department of Consumer Affairs, Post Office Box 5757, Columbia, S. C. 29250
Kenneth A. Davis - Office of Senate Research - 301 Gressette Building
John J. Johnson - Senate Banking and Insurance - 203 Gressette Building
Carleen McQueeney - Senate Banking and Insurance - 203 Gressette Building
TO: Senator Linda H. Short,
Chairman of The Consumer Finance Law Study Committee
FROM: Charles D. Walters,
Chairman - Legislative Committee
Independent Consumer Finance Association
DATE: February 27, 1995
RE: LEGISLATIVE PROPOSAL ON CONSUMER FINANCE ISSUES
Title 34. The proposed amendments to Title 34 reflect several significant changes in the current law that applies to Restricted Lenders in South Carolina:
o The initial fee currently authorized by law would no longer be a non-refundable fee at the time of loan prepayment. The initial fee would now be subject to refund under the Rule of 78ths at the time of loan prepayment. This major change will eliminate any economic incentive for early loan renewals or "flipping."
o The monthly maintenance fee would continue to be subject to a pro rata refund upon prepayment of a consumer loan transaction.
o A Restricted Lender would be authorized to make only one loan renewal during any 15 month period where the cash advance was less than 10% of the net outstanding balance. This will prohibit repeated small dollar cash advance loan renewals.
o Proposed rate changes designed to be as revenue neutral as possible on consumers and the Consumer Finance Industry. The adjustment in rates is designed to balance the major financial impact of making the initial fee subject to refund.
Title 37. The proposed amendments to Title 37 focus on debt collection issues and the need for consumers to obtain additional information regarding their rights and responsibilities in consumer credit transactions.
o The unconscionability section of the South Carolina Consumer Protection Code has been substantially amended to include major provisions of the Federal Fair Debt Collection Practices Act. The proposed language clarifies the obligations that a creditor or debt collector has while attempting to collect a debt associated with a consumer credit transaction. Many parties have been involved in this process since it applies to all lenders involved in consumer credit transactions in South Carolina.
o The unconscionability section has been amended to include a provision allowing a statutory penalty of $100 to $1,000 when a court concludes that a creditor or debt collector has violated this section. In addition, the consumer will continue to be able to collect reasonable attorney fees in a successful legal action against a creditor or debt collector.
o The proposal contains a provision that requires that the Administrator of the South Carolina Department of Consumer Affairs be given written notice of any claim of unconscionable debt collection activity at least 30 days before legal action could be commenced in any court in South Carolina. The Administrator would be required to notify the individual or organization complained against immediately upon receiving a written complaint. In addition, the Administrator will be required to provide the Director of the Consumer Finance Division with a copy of any complaint filed against a lender licensed by the Board of Financial Institution.
o The Consumer Protection Code has been amended to clarify what collateral may be taken in connection with a consumer credit transaction. The proposed language is consistent with the FTC Credit Practices Rule.
o Requires any Supervised Lender licensed under Title 37 who makes loans with a cash advance not exceeding $600 to limit consumer finance rates to a level no higher than that authorized for Restricted Lenders under Title 34. This amendment will prevent certain Supervised Lenders from making small loans typically made by Restricted Lenders at rates higher than those authorized by the General Assembly under Title 34.
o Requires the Administrator of the Department of Consumer Affairs to work with consumer and industry groups to develop an information pamphlet that describes and explains the rights and responsibilities of consumers and creditors in consumer credit transactions. Once developed and authorized, the industry will be responsible for reproducing and distributing the educational pamphlet to all consumer loan customers at the time of any initial loan in the amount of $2,000 or less.
o Supervised Lenders would also be required to limit loan renewals to one (1) time during any 15 month period on a loan of $1,000 or less where the cash advanced was less than 10% of the net outstanding loan balance at the time of renewal.
o Several technical amendments added to the Consumer Protection Code to implement the various provisions of the legislative proposal.
All of the parties to the above noted proposals have worked very diligently to draft a proposal worthy of support by the Consumer Finance Law Study Committee. The parties have agreed to all of the major concepts included in the above noted amendments. There are still some ongoing discussions regarding certain dollar amounts contained in the proposed amendments. The parties have agreed to include the concept of "potential benefit" with regard to the sale of insurance products. The proposed language for Section 37-5-108(4)(d) is still subject to continuing discussions.
The Independent Consumer Finance Association would like to express its appreciation to all of the members of the Consumer Finance Law Study Committee for their efforts to encourage balanced amendments to the existing consumer finance statutes. We are very encouraged that industry, consumer and governmental representatives were able work together to draft solutions acceptable all of the parties involved in this important matter.
[NOTE : THE REMAINDER OF THIS EXHIBIT HAS BEEN DELETED AS THE SUM AND SUBSTANCE OF IT IS REFLECTED IN THE LEGISLATION INTRODUCED BY THE MEMBERS OF THIS COMMITTEE]
COMMUNITY FINANCIAL INSTITUTIONS OF SOUTH CAROLINA
January 10, 1994
The Honorable Linda H. Short
S.C. State Senate
504 Gressette Building
Columbia, S.C. 29202
Pursuant to our recent conversation, I am writing to you in your capacity as Chairperson, Consumer Finance Law Study Committee regarding the discussion progress of effected groups subject to your committee's review.
As reported at the previous meeting, representatives of the S.C. Legal Services Association, S.C. Fair Share, the Independent Consumer Finance Association of S.C., the S.C. Financial Services Association, the credit insurance industry, and other interested parties have conducted discussions related to small lending issues in hopes of developing a compromise package for consideration by the committee. It was your expectation, and our sincere hope, that our discussions would be completed by January 9th.
As facilitator of the discussion sessions, I am happy to report that we have made substantial progress in the identification of issues of concern and the development of potential conceptual resolutions. As of this date, there are three major issues remaining and the parties involved are currently working on discussion drafts involving those issues. These are: (1) loan renewals (flipping): (2) debt collection practices; and, (3) insurance. Enclosed for your review is a memo providing a detailed summary of our discussions.
Since the potential solutions offered require extensive research, thought, and consultation with memberships / clients of each organization, we have recessed until January 16th at which time we will obtain a better sense of the possibility of overall success. We will, of course, be available at your meeting on January 17th to present a report.
I am very optimistic that we will reach a final agreement for your consideration. All parties are negotiating in good faith with hopes of developing a package which blends the continued availability of credit with legitimate consumer protections. In fact, we have already resolved major questions in a most areas except for the three outlined above. However, it is possible that we will be unsuccessful in our efforts to reach a final accord. Although there is a high level of optimism, I feel obligated to mention this for your purposes in making a decision regarding the impending deadline for a committee report to the General Assembly as mandated by the resolution.
I look forward to visiting with you and other members of the committee as the new session begins.
Stephen H. Smith
TO: Interested Parties
FROM: Steven Hamm
DATE: January 6, 1995
RE: Meeting To Further Discuss Issues Pending
Before Consumer Finance Law Study Committee
Our File No.: 3167.001
On Tuesday, January 3,1995, representatives of Legal Aid, Fair Share and the Consumer Finance Industry met again in Columbia to further discuss issues raised during the Public Hearing held by the Study Committee and to explore various proposals offered by participants in previous meetings. Steve Smith again served as moderator of the meeting. Although there was no final agreement, the meeting focused on three major issues that currently remain unresolved. Those issues include renewals, insurance and debt collection.
The group started the meeting by reviewing the December 15, 1994 memorandum to determine the current status of previous discussions and the possibility of resolving issues identified in that memorandum. Steve Hamm reported that he had prepared a rough draft of an amendment that would add major provisions of the Federal Fair Debt Collection Practices Act to the Unconscionability section of the South Carolina Consumer Protection Code. That proposal will be sent to individuals attending the meeting after a review by ICFA members.
Steve Hamm also reported that the Fourth Circuit Court of Appeals ruled on December 30,1994 that Refund Anticipation Loans (RAL) made in South Carolina could lawfully disclose Annual Percentage Rates based on an assumed maturity of one year even though the transaction had an effective duration of less than one month. Many small dollar RAL's have effective APR's that exceed 100% based on the short term of the loan.
After reviewing the various issues outlined in the December 15th memorandum, the group first focused on issues surrounding renewals and what steps might be taken to determine if a consumer would receive a potential benefit from the purchase of credit insurance products in connection with a consumer loan.
During the previous meeting of this group, the representatives for the Independent Consumer Finance Association (I.C.F.A.) presented a proposal to limit renewals where there is a cash advance of less than 10% of the net outstanding balance. That proposal would require that a consumer lender could not renew a loan more than one time during a 15 month period where the cash advance was less than 10% of the net outstanding balance of the loan being refinanced. The representative for Legal Aid continued to express some concern with the 10% proposal on renewals. Industry representatives noted that they continue to be evaluated by outside rating organizations. Those organizations generally deem a loan to be not performing if a renewal did not involve a new cash advance of at least 10% of the net outstanding loan balance. Industry representatives stated that it was not good business practice to regularly engage in lending activity where the consumer's financial situation could not support a cash advance of greater than 10% of the net outstanding balance. Industry representatives reiterated their position that they were prepared to support a 15 month limitation during which only one renewal could involve a cash advance of less than 10% of the net outstanding balance. The parties agreed to continue to review their positions on this matter. The 15 month proposal offered by ICFA reflects a middle ground between the industry's earlier proposal of 12 months and the counter proposal by Fair Share and Legal Aid to extend that period to a term of 18 months. There were indications that an agreement on this issue might be more easily attainable should the ongoing question involving fees charged on a loan renewal be resolved.
The discussion next turned to fees charged in connection with a renewal of a loan. The representative for Fair Share expressed concern that certain fees associated with the renewal of a restricted loan were currently nonrefundable. There was an extensive discussion regarding the revenues associated with various fees permitted in Title 34 and the potential impact on the bottom line on a consumer finance organization if those fees were changed by the General Assembly. The representatives for Legal Aid and Fair Share proposed to change current law and make the 7% initial fee refundable at the time of a loan renewal. After some discussion, the parties agreed to move onto other issues and return to the issue of the treatment [sic] initial fees and maintenance fees at the time of a loan renewal later in the meeting.
The next issue addressed was credit insurance products and the mutual desire to ensure that a consumer had a potential benefit before the cost associated with a credit insurance product could be included in a loan. The parties had previously reached a general agreement that credit insurance sold in connection with a consumer loan must have the potential to provide a benefit to consumers in order to qualify as a lawful charge. There was general agreement that any insurance sold in connection with the consumer loan that could not potentially benefit the consumer could be used as a basis to claim that the loan transaction could be voided.
The discussion then returned to the issue of providing consumers with information that might assist them at a time they had a complaint or concern about their consumer loan transaction. The discussion moved away from the concept of requiring State agency names, addresses and telephone numbers on the loan contract itself and moved toward the concept of requiring that a pamphlet prepared or at least approved by the Department of Consumer Affairs containing all relevant telephone numbers, addresses and other information that would be made available at each lending office and given to the consumer at the time a consumer signed a loan contract. A separate pamphlet would avoid the need to reprint hundreds of thousands of consumer loan finance contracts in South Carolina and would allow the distribution of uniform information to all consumer borrowers at the time they visited a consumer finance location. The parties reached a general agreement that such a pamphlet would be acceptable as a device to ensure that citizens knew what their consumer rights and obligations were and where to turn when they had a problem with their loan or during collection efforts associated with such a loan.
There was a short conversation about enacting language that spelled out the requirements for pre-existing conditions in credit insurance contracts in order to clarify when accident and health insurance could be reasonably sold in a consumer credit transaction. The representatives for Fair Share and Legal Aid expressed general opposition to dealing with the issue of credit insurance products in that fashion and did not accept this proposal as the only solution to this problem.
The conversation then returned to fees charged to consumers at the time of a loan renewal. There was a detailed discussion about the impact of making all fees associated with the renewal of a loan under Title 34, which applies only to restricted lenders, subject to refund upon a renewal. The representatives of the Consumer Finance Industry were uncertain as to what impact such a proposal would have on their financial stability. Several proposals where [sic] placed on the table for discussion. Those proposals included making the initial charge subject to refund at the time of renewal but not if the loan was paid in full prior to maturity by the consumer. The representative for Fair Share acknowledged the need to adjust fees in other areas if a change in the charges associated with the renewal of a consumer loan were to be made in order to maintain a neutral overall revenue impact.
At this point, the parties agreed to take a break in order to allow the ICFA representatives and Fair Share and Legal Aid to meet privately to discuss their current thinking on the many proposals discussed during the course of the meeting. The representatives for the Consumer Finance Industry agreed to try to come to some understanding regarding their reaction to the proposals placed on the table for discussion dealing with changes in authorized charges currently applied in a restricted loan renewal.
Upon returning to the meeting, the representatives for the Consumer Finance Industry urged support for their proposal to limit a renewal where the cash advance was less than 10% of the net outstanding balance to one time during any 15 month period. It was again pointed out that the Consumer Finance Industry is regularly evaluated by outside rating organizations. Those rating organizations deem a loan to be non-performing if the new cash advance is less than 10% of the net outstanding balance. The industry stated that it needed to maintain that current standard in an effort to demonstrate financial soundness and proper business procedures to outside rating agencies that might impact on their ability to secure funds for their lending operations.
There was a discussion about the possibility of making the finance charge and the monthly maintenance fee authorized by Title 34 refundable under the Rule of 78ths at the time of a loan renewal. In addition, in order to make the proposal as revenue neutral as possible, there was suggestion that the maintenance fee might be increased from the current $1 per month to $2 per month and the bracketed rates established by statute be increased by an appropriate amount to maintain revenue neutrality. Those proposals were presented as a possible method to deal with multiple renewals without eliminating revenues to a consumer loan organization.
The discussion then returned to the issue of making all charges associated with the renewal of a restricted loan be [sic] refundable at the time of renewal. Those charges would include the initial charge, the finance charge authorized by statute and the monthly maintenance fee. The representatives from the Consumer Finance Industry stated that they were unable to reach a general agreement on this important issue during the break since it represented such a major change in a lending statute that has existed in South Carolina for approximately 40 years. The representative for Fair Share expressed a willingness to increase the bracketed rates authorized by statute as a way of making up for revenues lost by making all charges refundable at the time of renewal rather than increasing monthly maintenance fees. After extensive discussion, the parties agreed to continue to explore this major issue. The consumer finance representatives agreed to meet with their financial people to complete some calculations to determine what impact such a major change would have on their ongoing business operations as well as to provide both the consumer and the lender flexibility in managing the loan transaction.
The conversation next turned to how the parties might implement their agreement to make sure that credit insurance products would have a potential benefit for consumers and how a violation of that general concept would be handled. The group reviewed S.C. Code Section 375-108 [sic] which is the Unconscionability section in the S.C. Consumer Protection Code. There was a general discussion regarding the possibility of amending Section 4(b) to include specific reference to consumer loans. As currently drafted, Section 37-5-108(4)(b) makes reference to the inability of a consumer to receive substantial benefits from the property or services sold or leased in connection with a consumer credit transaction. The discussion on that section centered on whether there could be an amendment to include reference to consumer loans or credit insurance. Such an amendment would provide a consumer with the opportunity to claim unconscionable conduct if a consumer credit insurance product was sold to a consumer that could never provide any potential benefits.
It was noted out that Section 37-4-106 is the Unconscionability section in the insurance chapter of the South Carolina Consumer Protection Code. As currently drafted, Section 37-4106 [sic] includes three standards that a court would review to determine if unconscionable conduct had taken place in connection with the sale of credit insurance. They include:
(1) potential benefit to the debtor including satisfaction of his obligations,
(2) the creditors need for the protection provided by the insurance, and
(3) the relationship between the amount and terms of credit granted and the insurance benefits provided.
It was pointed out that Section 37-4-106 already provides the standard of "potential benefit" to the debtor which would eliminate the need to make any changes in Section 37-5-108(4)(b). The representatives for Fair Share and Legal Aid continued to want a reference to the term "consumer loan" in Section 37-5-108(4)(b).
The discussion then turned to what remedy the parties might agree to in connection with a proposal to include the standards contained in the Federal Fair Debt Collection Practices Act in the Consumer Protection Code. The representatives for the Consumer Finance Industry stated that they were prepared to urge support for a proposal that required a consumer to seek an administrative remedy from the Department of Consumer Affairs and/or the Board of Financial Institutions. The representatives for Legal Aid and Fair Share continued to state that they could only support a remedy that provided for direct access to the judicial system without a precondition of seeking administrative relief.
Since representatives of all parties realized there was a need to perform extensive research and have consultations with their members and clients concerning potential solutions to the issues discussed, the meeting was adjourned until Monday, January 16, 1995 at 9:30 a.m. at Mr. Hamm's office.
December 6, 1994
The Honorable Linda H. Short
Consumer Finance Law Study Committee
Post Office Box 142
Columbia, South Carolina ~9202
RE: Recent Public Hearing on the Small Loan Industry Of South Carolina
Dear Senator Short:
On behalf of the Independent Consumer Finance Association of South Carolina, I would like to thank you for giving us an opportunity to make a detailed presentation to your Committee. We believe our industry serves a vital need for citizens in, South Carolina who need small cash loans to meet unexpected emergencies in their lives. We believe that our record of making over 885,000 small loans in South Carolina during 1993 clearly demonstrates the need for small loans and the need for the General Assembly to take steps to protect both the citizens who need small loans and the industry that has responded to that need.
The Independent Consumer Finance Association was created by the restricted lenders in South Carolina to establish professional business standards of conduct in order to assure that citizens in South Carolina are treated fairly and with respect. We make more small loans available to our citizens than many surrounding states and charge actual dollars and cents to our customers that are highly competitive with the rates and charges imposed by nearby states, notwithstanding differences in disclosed annual percentage rates. We are very proud of the fact that South Carolina citizens were able to obtain over 885,000 small loans in South Carolina under $600 compared to only approximately 78,000 in the State of North Carolina.
The restricted lenders in South Carolina fully support reasonable proposals that will respond to the legitimate concerns of your Committee as well as insuring that small loans continue to be available to our fellow citizens. We believe the record before your Committee demonstrates the rates charged for restricted loans are reasonable in relation to the size of the loan, business risk, and service rendered to small borrowers. I am sure that you and your Committee understand that we would be unable to support any legislative proposal that would upset the existing statutory [sic] balance between rates, risk, and service to the public. We believe that any efforts to mandate changes in rates charged to the public will simply eliminate the availability of small loans to certain of our citizens in South Carolina. Such action would not be good public policy nor fair to your constituents.
The Committee heard testimony expressing concern on a number of issues associated with making small loans in South Carolina. Some of the issues of concern included debt collection practices, loan renewals, collateral for loans, and informing citizens about organizations that they can contact for assistance in time of need. The Independent Consumer Finance Association fully supports the concept that citizens should be treated responsibly and fairly when they obtain small loans.
Given the short period of time that has elapsed since the Public Hearing on November 30 and December 1, 1994, the Independent Consumer Finance Association would like to offer some general observations to some of the concerns raised during the course of the Public Hearing.
1. The Independent Consumer Finance Association would urge your Committee to proceed cautiously as it examines the renewal/flipping issue raised at the hearing. Loan renewals are one important way that a consumer can deal with financial difficulties that may arise after the consumer has obtained a small loan. It also gives the customer the opportunity to obtain additional cash in times of need. Any effort to artificially limit the ability of a citizen to renew a loan beyond current existing law has the potential to have a negative impact on many citizens in our State. There are times when a loan renewal provides a major benefit to a borrower and protects their credit rating and their ability to get small loans in the future. In an effort to be of assistance to your Committee, the Independent Consumer Finance Association suggests that references or changes in the law dealing with renewals embody the general concept that a small lender can make only one renewal during any 12-month period where there is a cash advance of less than 10% of the net balance owed at the time of renewal. This concept would greatly eliminate the concern that citizens are routinely put in a situation of renewing a loan without any additional cash being placed at their disposal. This proposal would also recognize that there may be times when a customer is best served by making a renewal with less than a 10% cash advance during a time of financial emergency. The 12-month limitation would eliminate repeated subsequent renewals with little or no cash advance. It should be noted that the lndependent Consumer Finance Association does not believe that this is a problem in South Carolina, since it does not make good business sense to constantly renew loans where the customer is unable to make payments. Restricted lenders in South Carolina are already the only lenders in our State that currently have restrictions on their ability to renew loans for their satisfied customers. We look forward to working with you and your committee to develop language that would properly address this issue.
2. As we stated repeatedly during the Public Hearing, the lndependent Consumer Finance Association is strongly opposed to the use of abusive debt collection practices in South Carolina. Such action is already illegal under the South Carolina Consumer Protection Code. A consumer has a legal obligation to pay according to the terms of the loan contract and the lender has an obligation to treat borrowers in such a way that promotes respect for the individual and compliance with the law. Such action makes good business sense because it will encourage a continuing business relationship in the future.
There were repeated references to the Fair Debt Collection Practices Act during the course of the Public Hearing. The Independent Consumer Finance Association is prepared to consider changes ln the South Carolina Consumer Protection Code that might embody some portions of the Federal Fair Debt Collection Practices Act. As you are aware, it would be inappropriate to place that entire act within our State law since there are a number of aspects to the federal legislation that would not apply to lending activity in South Carolina. The Independent Consumer Finance Association could not support a proposal that would simply create new opportunities for law suits [sic] in South Carolina. Given the current backlog of court cases on our civil dockets, we believe that a better solution is to provide either the Department of Consumer Affairs or the South Carolina Board of Financial Institutions with the tools to penalize documented cases of collection abuse. We believe such an administrative remedy would have an immediate and positive impact on the entire industry and would provide relief to affected consumers in a much more timely fashion. We will await some guidance from your Committee before we endeavor to draft language that we would find acceptable in this area.
3. The consumer finance industry is proud of its record of few complaints filed with State regulatory agencies. We are prepared to support a proposal that insures that citizens know where to complain when they encounter a problem with their small loan, by placing the name, address, and telephone numbers of regulatory agencies on the credit contract itself. We believe that disclosing the name, address, and telephone number of a regulatory agency that a consumer can turn to would be a positive benefit for consumers in South Carolina.
4. There were a number of references to collateral in connection with small loans made in South Carolina. The Independent Consumer Finance Association urges your Committee to recognize that collateral constitutes an important part of any loan transaction regardless of the dollar amount. The Federal Trade Commission has already issued its Credit Practices Rule and has proscribed the collateral that may not be taken in connection with a consumer finance transaction. We do not believe that the Committee received any significant evidence on the record that supports a claim of abuses in this area. The General Assembly can monitor this issue by directing the Board of Financial Institutions and the Department of Consumer Affairs to keep records of all telephone and written complaints by category available for public inspection and review.
We believe that your Committee can provide a positive benefit to citizens in South Carolina and maintain the integrity of the small loan industry in South Carolina by following our general suggestions dealing with renewals, Fair Debt Collection Practices Act, collateral and consumer notification of agency to Contact in time of need. We stand ready to respond to any request for assistance that you might make to us. We are prepared to meet with Sue Berkowitz, John Roeuf, and others in order to maintain an open and positive line of communication. We look forward to working with you and trust that you will take steps necessary to maintain the availability of small loans in South Carolina.
/s/Charles D. Walters
Chairperson, Legislative Committee
Independent Consumer Finance Association
of South Carolina
December 5, 1994
Jay Johnson, Esq.
Senate Banking & Insurance Committee
203 Gressette Bldg.
Columbia, South Carolina 29201
I have enclosed a copy of the written proposals by South Carolina Fair Share and the South Carolina Legal Services Association for the Committee to Study the Consumer Finance Laws. The documents include:
1. Proposals by South Carolina Fair Share and South Carolina Legal Services Association.
2. Copy of written analysis by Dr. John Ruoff of Financial Reports produced by the SC Board of Financial Institutions [deleted].
3. Copy of the Maine "37 month rule" an excerpt of a report that discusses the consumer reaction to unavailability of credit [deleted].
4. Copy of the Fair Debt Collection Practices Act and the Federal Practice Rule [deleted].
5. Statistics on the number of cases closed by the Legal Services programs South Carolina in 1992 and 1993 [deleted].
6. A written explanation of Ms. P's payment record as explained by S. Berkowitz during the hearing.
Please let me know if you need any additional information.
/s/Susan B. Berkowitz
Legislative changes proposed to the Consumer Finance Law Study Committee by South Carolina Legal Services Association and South Carolina Fair Share:
1. Collection Practices
Put relevant portions of the federal Fair Debt Collections Practices Act into the South Carolina Code. Place actual language and not simply reference to the federal code or regulations since most magistrates won't have those documents available to them.
These changes should maintain the private right of actions set forth in the federal law, rather than merely giving administrative authority to fine to either Consumer Affairs or the Board of Financial Institutions.
The prohibitions on practices should also be made to apply equally to first and third party collectors.
Attached to this document is a copy of the Federal Fair Debt Collection Practices Act. The sections that should be adopted and incorporated into state law are highlighted.
A. Prohibit renewing any loan where the borrower will receive less in new cash proceeds than at least one payment. This does not prohibit renewals except in those cases where borrowers are receiving small dollar amounts on the new loan.
B. Prohibit the lender from charging an initial fee on that portion of the loan used to pay off the prior loan amount. The initial fee would only be charged on the new money that the borrower walked out with. This will stop the practice of charging initial fees on the same monies over and over.
C. Restrict any loan from being renewed for a total period of more than three years, except that the maximum finance charge on the loan reduces to 8 percent after 3 years. A copy of the Maine statute is attached.
3. Credit Insurance
A. Wipe out all loan repayments on any loan on which the lenders sells a credit insurance product which cannot benefit the borrower. The clearest example is the sale of credit disability insurance to a person already disabled.
B. Prohibit sale of credit life on small loans. The cost is extremely high at the $3.00 minimum and provides no benefit or protection to small borrowers.
C. Give regulation of credit insurance products, including their rates, to the Insurance
4. Interest Rates
Cap the interest rate on loans by size of loan. Tie those caps to a defined prime rate.
Write the Federal Trade Commission's Credit Practice Rule (16 CFR 444) into the South Carolina Code with a statutory penalty in South Carolina law.
6. Complaints and communication
A. Each loan document should clearly state how to contact persons from whom real redress can be sought. No one should be directed to any agency for assistance which lacks power to enforce sanctions on a non-compliant lender.
B. Those who take complaints on consumer finance loans (Consumer Affairs and/or Board of Financial Institutions) should be required to take such complaints by telephone and in person and prohibited from requiring that the complaint be in writing.
C. Require every document connected with the loan to be written no higher than the third grade level.
D. Require Consumer Affairs to produce an easily readable and understandable poster which plainly sets out the rights and obligations of all parties under a loan and where a complainant can go for redress. They should be required to contract with an organization such as Literacy South which specializes in adult education in communities of low literacy levels to produce that poster. Require each licensed lender to display the poster. A videotape could also be produced and loan companies required to show it to any customer before entering into a loan agreement. Both poster and videotape costs should be covered by selling them at an actual cost of production price.
A. Differentiate restrictions, practices and regulation by loan size rather than by the current "restricted" and "supervised" lender distinctions. Place regulation and supervision with one agency.
B. Prohibit the mailing of unsolicited checks to customers as a form of loan advertising or solicitation.
Numbers presented by John C. Ruoff, Ph.D., at December 1 hearing calculated from 1993 Annual Reports of the Board of Financial Institutions
Loans Receivable - Consumer Finance Business $137,819,828
Expense reserve for Bad Debts 3,940,363
% reserve of loans receivable 2.9%
Total Loans Made $373,294,260
Loan Balances Charged Off 4,305,308
% loan volume charged off 1.1%
Total net receivables - Consumer Loan Business $1,324,872,418
Reserve for Bad Debt 41,003,835
% reserve of loans receivable 3.1 %
Total loan volume - Consumer Loan Business $1,064,332,615
Total losses from uncollectible accounts 46,572,603
% loan volume uncollectible [sic] 4.4%
Total loans - Consumer Loan Business 462,725
Total loans uncollectible 29,142
% loans uncollectible [sic] 6.3%
ORIGINAL LOAN: $300
DATE INTEREST REFINANCED CASH
OF LOAN RATE AMOUNT REC'D
5/23/91 49.15% $365.80 $27.23
8/26/91 53.30% $386.55 $0.15
12/14/91 53.30% $364.55 $22.24
9/1/92 60.31% $239.25 $6.89
TOTAL PAID TO MS.P THROUGH REFINANCINGS: $56.51
Outstanding Balance: $350.00
PAYMENTS TO THE FINANCE COMPANY
DATE AMOUNT PAID
TOTAL RECEIVED BY FINANCE COMPANY FROM MS. P: $675.51
P.O. Box 7187 Columbia, S.C. 29202 (803) 252-0034
S.C. Residents 1 (800) 922-2730
My name is Susan B. Berkowitz. I am Co-Director of the South Carolina Legal Services Association, the state back up center for the Legal Services programs in South Carolina. Legal Services provides free civil legal assistance to poor persons. I have over ten years experience practicing in the area of consumer law. I have provided direct assistance to hundreds of clients over the years, as well as give assistance to Legal Services and private attorneys across the state. I also monitor cases and trends in the consumer area. I have lectured on numerous occasions in the area of consumer law and presently serve on the South Carolina Bar's Consumer Law Section Council.
I am very pleased that the legislature is interested in reviewing the practices and abuses of the Consumer Finance Industry. Over the last ten years I have observed numerous practices that are consistent with both the Supervised and Restricted lenders. I have watched low income consumers suffer from these abusive practices only because this industry is presently able to operate in this fashion. It is my hope that this Committee, after reviewing the information provided, will formulate recommendations to
eradicate these practices and put consumers who utilize this industry in less jeopardy of entering unconscionable contracts.
I have five areas that I wish this committee would closely review. In looking at these areas I believe that you will be able to address the most common and severe problems that consumers encounter across the state. They are as follows:
1. High Interest Rates: The interest rates charged by the consumer finance industry are notoriously high. Most loans are made for under $500 and have an interest rate of at the least 50%. I have routinely seen contracts over the years at 70%, 80% and 90%. I have enclosed a random sampling in your materials to show the rates that are charged. The argument by the industry is that the rate appears
high because the loan is small and these consumers pose a substantial risk. The industry provides its cost per loan to the Board of Financial Institutions, but no independent examination of its actual costs has ever been made. If the industry were required to justify their costs like other regulated industries, utilities and insurance, we may find that the cost per loan is not as high as thought. This would then weaken the argument for these shocking rates. In addition, if the majority of the loans made are refinancings the costs must be inflated.
2. Refinancing (flipping) and the Rule of 78's: If there is any one pattern that can be seen in both the Supervised and Restricted lenders, it is the refinancing or flipping of contracts. Thousands of clients have come into our offices over the years indebted to five or even ten companies. Each contract has one thing in common. It has been refinanced at least once, but more than likely three, four or five times. In the packet that I have provided, there is an account card under the section labeled Refinancing Notices where a client's account with Security Finance was flipped 23 times. I have recently seen another client who has had her account refinanced 16 times since 1980. This abusive practice is ongoing and prevalent. Nationally it is estimated that over 60% of all contracts are refinanced. Clients are encouraged to refinance for small amounts of additional cash. Clients are harassed into refinancing when they get behind. The contract gets paid off and the finance charge, insurance, non-filing fee, maintenance fee and initial fee starts all over again.
The industry really finds this practice lucrative because it is allowed to rebate interest pursuant to the Rule of 78's. There is a very good explanation of the Rule in your materials prepared by staff. What these materials demonstrate is that the Rule allows the industry to credit the majority of the first payments to interest. When the contract is refinanced the company only rebates a small potion [sic] of the interest prior to paying off the balance of the old loan to itself. The company then tacks on all new interest charges, insurance charges and non-filing insurance. The client may receive some money, usually very little and he owes the company just as much as when he walked out the first time. The client can end up paying back three or four times the amount he originally borrowed and still find himself indebted for the original amount of the debt.
The Consumer Protection Code and the Consumer Finance Act need to be amended to limit the number of times a contract may be refinanced. Currently the only limit on refinancing can be found in the Consumer Finance Act, thus only regulating Restricted Lenders. This law permits the refinancing of a contract every ninety days. The law clearly allows for extreme abuses and does nothing to curtail this practice.
3. Insurance Charges: The majority of my consumer clients find themselves contracting for Accident and Health Insurance and Credit Life Insurance. Both of these coverages are very expensive for the type of insurance they provide. Many times the consumer is unaware that he has purchased the coverage as it is preprinted on the contract and he signs it as instructed.
For many consumers this coverage is useless. The life insurance is supposed to ensure that the debt is paid upon death so no claim can be made against the estate. My clients rarely have any property to be probated and would not have anything a claim could be made against. I have also seen situations when life insurance was placed on the non-working spouse which is worthless. If the wage earner dies the non-working spouse is still left owing the debt and with no income or coverage.
Accident and Health insurance is also provided to many individuals who could never take advantage of the coverage. Many of my clients receive SSI or Social Security Disability. This is a steady check provided to them because they have been determined disabled. First of all, they have a pre-existing condition that warrants the receipt of this benefit but may also keep them from ever being eligible to collect. The coverage is really useless as they will not lose this income if they become sick or in an accident, the two reasons one would utilize this coverage if working. They are receiving coverage that they could rarely if ever use, yet they are paying ridiculously high premiums for this privilege. These practices need to be found unconscionable.
The last form of questionable insurance is available solely to protect the company. This is non-recording insurance. Normally when a contract is secured by the consumer's collateral the lender protects his interest by perfecting his lien at the RMC Office. This is done by filing a simple form. The first to file is the first in line if the consumer defaults on the loan. The Finance industry has developed a way to get around perfecting these liens as their intention is never to repossess the property just to have it as collateral for enforcement purposes. Instead of filing the form to protect their interest they chose to "purchase" insurance that will pay them for the collateral in the event another creditor repossesses first. This is the non-recording insurance. It is not clear to me whether a premium is ever paid, how it is assessed to each contract or if the creditor is self insured. As with the other two insurance this amount, $8.00 per contract is charged to the consumer with each refinancing no matter how many times it is done.
Clearly the best way to regulate the insurance practices of this industry is to allow the Insurance Commission the authority to review and regulate insurance. The practices outlined above presently go unregulated and unchallenged leading to widespread abuse.
4. Debt Collection Practices: Probably of most concern to my clients is the way the Finance Industry attempts to collect payments when someone is in arrears. Almost every consumer I counsel has to be reassured that he or she will not be put in jail for owing a consumer debt. This notion is either told or implied to these clients by the individuals attempting to collect the debt. Harassing calls at home and on the job at all hours of the day and evening are common place. Contact with third persons about the consumer's debt occur regularly. Nasty letters, abuse of the legal system and threat of harm are not unusual.
Since these companies are collecting their own debts they are not subject to the Federal Fair Debt Collection Practices Act. They are subject to our state's Consumer Protection Code. Although I can usually show a violation of the Code, it is hard for me to get any judgement against the creditor since the penalty is twice the actual damages. It is very hard to "prove" damages. Without the financial sting of monetary damages for their actions it is very hard to convince these companies to change their ways. The Fair Debt Collection Practices Act allows for statutory damages of $1,000 for each violation. Amending our state code to allow for the award of statutory damages for each violation would give consumers the enforcement mechanism needed to stop these abusive practices.
5. Security or Collateral for Contract: In all of my years of practice I have never seen a Finance Company signature loan for under $600. Clients are required to pledge personal effects and goods. These items have no value to the finance company but are extremely valuable to the consumer. They are televisions, phones, bicycles, encyclopedias, freezers, microwave ovens to name a few. I have even seen a baby's car seat listed as collateral. The purpose of this collateral is to have psychological edge on the consumer. The property is used as a threat to force refinancing.
In March of 1985 the Federal Trade Commission (FTC) passed the Credit Practice, Rule 16 CFR 444, which prohibited the taking of furniture and appliances as collateral. The intent of the FTC was to limit some of these practices by prohibiting goods such as beds, refrigerators, cribs and stoves from being taken as collateral. Unfortunately, we still see contracts that contain appliances and goods in violation of the Act. It is very difficult to get the magistrates to find damages when this happens. As with debt collection problems, if you can not assess damages then these practices will continue. This could be resolved by adding a section to our Consumer Code which would allow damages for these violations.
The Finance Industry will tell you a number of things about themselves and their customers. They will tell you that their customers are bad risks. They will tell you that it costs as much to write a $50 loan as a $500 loan. In an unregulated environment, they can tell you just about anything. The data provided by the Finance Community does not allow you clearly to evaluate their otherwise unsubstantiated claims.
We would suggest that before crediting their self-serving statements, you examine the actual costs of doing business in a few randomly selected offices. We would urge you to require production of information on the proportion of loans refinanced.
We would suggest that you not just accept their bald assertions about our clients and their customers. We know that poor folks are sometimes slow pay. But we know that, when not overwhelmed by circumstances and unconscionable lending practices, poor persons are probably more committed than most to meeting their obligations. We would recommend an analysis of bankruptcies filed filed [sic] by this group of consumers compared to consumers of other banking services in South Carolina and all banking services in other states.
We would urge you to examine closely the purported benign "industry standards" for collection practices. Where are they written? How are they enforced? Do they exist? We would also recommend that you go to magistrates and sheriffs in your communities and determine how the court system is used to "encourage" payment or settlements to the lenders advantage.
We would urge you to look closely at insurance practices. Should it not be unconscionable as a matter of law to sell credit disability insurance to an already disabled person?
We would urge you to review the practice of charging "non-filing insurance" to protect the lender in the collateral. Is insurance really being purchased? Are lenders self-insuring? What are the actual loss ratios on this insurance? Do they justify an $8.00 charge?
We would strongly recommend that you reconsider use of the Rule of 78s in favor of an actuarial rebate methodology.
Finally, we suggest that you consider the enforcement power of the two supervisory agencies, how that powers can be better coordinated, and how any consumer would know to whom to look for redress.
The Industry argues that if is it not permitted to operate as it does presently, it can not afford to do business and will be forced to close. It also argues that our clients will be without anywhere to turn to for credit. As we examine what money our clients are actually putting in their pockets, we must ask is this such a bad thing. We must also ask if the Finance Companies were not so plentiful other legitimate businesses will be able to flourish. Credit Unions would be able to make some of the smaller loans that are now being made by the industry. The banking institutions would no longer be able to hide behind these lucrative businesses and would be forced to make loans at reasonable rates to the low income community. We must look at the Finance Industry as a whole, including the unconscionable practices discussed above to determine whether they are providing a service or credit carnage.
/s/Susan B. Berkowitz
The Honorable Linda H. Short
Consumer Finance Law Study Committee
Post Office Box 142
Columbia, South Carolina 29202
RE: "Miss Rosa"
Dear Senator Short:
During the Public Hearing held by your Committee, there were several references to a "Miss Rosa" and her experiences renewing a loan in the Beaufort area. Representatives for Legal Aid prepared a chart which represented that "Miss Rosa" received $350.00 in cash and had paid $1,537.00 during a period of time of about 13 months and still had an outstanding balance.
We have been unable to determine how those calculations were made. Loan records indicated that "Miss Rosa's" actual payments totalled $489.25 during 1991 while refinancing several loans. Obviously, there has been a mistake in the process of preparing the "Miss Rosa" chart. We would request that your committee ask for the underlying numbers that were apparently used to support the claim that "Miss Rosa" had paid $1,537.00.
Thank you for allowing us to clarify this matter.
Thanking you, I am,
KNEECE, KNEECE & BROWN
/s/By: Robert E. Kneece
Madam Chairman and Members of the Committee:
My name is Stephen H. Smith and I serve as President and CEO, Community Financial Institutions of South Carolina, a statewide trade association representing the thirty six (36) FDIC insured savings institutions in our state. In addition to offering deposit and banking services, our membership is a major provider of mortgage and consumer credit to South Carolina citizens. These institutions are defined as supervised lenders under the S.C. Consumer Protection Code. They have an important interest in your deliberations.
As their representative, I have a peculiar interest in that my fingerprints are engraved upon the current statutes governing lending in South Carolina. During the 1982 session of the General Assembly, I served as the Legislative Coordinator of the Association of Lenders and Creditors which was composed of CFISC, the S.C. Bankers Association, the Mortgage Bankers Association of the Carolinas, the S.C. Credit Union League, and the S.C. Financial Services Association (formerly The S.C. Consumer Finance Association). The latter was an association of supervised consumer finance companies operating pursuant to the SCCPC. Independent consumer finance companies, often called "restricted lenders", opted to maintain their then existing treatment under the statutes and remained apart from the pursuit of legislative changes.
The Association of Lenders and Creditors worked closely with the S.C. Department of Consumer Affairs in crafting an omnibus legislative proposal, which would provide an open lending market for supervised lenders, while at the same time providing consumer protections. The pre-1982 financial environment was such that interest rates had risen to record levels due to policies of the Federal Reserve Board in fighting inflation. Since the General Assembly imposed interest rate limitations below the actual market rate, lenders ceased making loans since their cost of funds exceeded the return provided by the maximum statutory rates. The scarcity of credit damaged South Carolina's economic environment and spurned development activity.
A proposal supported jointly by the S.C. Department of Consumer Affairs and supervised lenders was drafted removing statutory interest rate limitations with the exception of agricultural loans and those made by "restricted lenders" - or small loan companies. As I mentioned, the independent consumer finance companies elected to continue operations under their then existing rate statutes. Adoption by the General Assembly of this open market philosophy for supervised lenders led to a renewal of lending opportunities. What we argued then became a reality - as market rates declined, so did lending rates at supervised lending companies. In fact, lending volume soared as the market improved and loans were being made at record low interest rates during the turn of the decade and into the 90's.
Since South Carolina's capital markets do not have the capacity to fund its loan demand, we have used the open market philosophy to attract billions from out-of-state markets to fund the lending needs of our citizens and businesses. Investors view South Carolina's statutory framework as one which provides a legitimate business and government partnership. Borrowers here are the beneficiaries.
The 1982 proposal also provided a system requiring supervised lenders to file their maximum interest rates with the SC Department of Consumer Affairs, and also to post those rates in a conspicuous place in their lobbies. The purpose was to allow consumers to shop the market rate offerings by lenders thereby injecting competition in the marketplace. Other consumer protections requested by the S.C. Department of Consumer Affairs were adopted including provisions for unconscionable conduct by lenders and remedies for such conduct.
Our intent was to provide a balanced system whereby money would flow to borrowers without usury suppression in the market, and consumers would enjoy access to funds in order to meet their credit needs. By the same token, the supervised lending community was ar~ious and willing to provide the S.C. Department of Consumer Affairs sufficient power to regulate unscrupulous lenders who might elect to take advantage of the system. In fact, we maintain a close working relationship with this department in supporting such efforts both in the marketplace and in governmental forums.
It is our opinion that the statutory framework adopted in 1982 has worked well in South Carolina. The borrowing public has enjoyed an unrestricted flow of funds available for investment in their needs at reasonable market rates. Never before has credit been so easy - maybe too easy at times. Our partnership with consumer regulators has been positive and beneficial.
We regret, on numerous occasions since passage of the 1982 legislation, there have been those who have chosen to exploit that which was created. Our regulators have responded to the extent provided in their empowerment, and well intended lenders have supported them in thwarting activities which might threaten the freedoms gained in the 1982 Act. However, given the large number of lending institutions in our state and the large volume of loans made which have been made, abuses in the system have been the exception rather than the rule.
At today's meeting, we do not intend to categorize any activities in question by your committee or point our fingers at any specific lenders either present or of interest. However, we strongly urge the committee to eliminate from consideration the reimposition of interest rate limitations as a possible means of deterring lending practices which you may find objectionable. In doing so, you would return our state to a condition wherein the overall flow of funds would be shut down in times of higher interest rates, and hedged when favorable conditions exist. In addition, reimposition of interest rate ceilings would be tantamount to punishing the many for the actions of a few.
It has been proven that interest rate limitations do not work particularly in a state which relies heavily upon out-of-state sources for funds. In fact, the pre-1982 era serves as historical proof that the rate that you might set will then become the prevailing lending rate charged by lenders - regardless of market conditions or competitive forces at work. You will receive the blame for higher rates when they should be lower, and the shortage of funds when the market exceeds your limitation.
Should you elect to address any alleged abuses through legislation, we respectfully urge you to seek remedies via consumer protection mechanisms which do not punish those who abide by the spirit of the landmark 1982 act. We do not doubt that current statutes may be in need of a "tune up" after 12 years of existence, and our association offers its willingness to assist in the development of positive changes.
Thank you very much.
Year Max. Rate Min. Rate Number
1993 71 38 80,614
1992 71 40 78,799
1991 70 40 76,492
1990 75.92 41.57 69,162
1989 57.84 38.9 49,017
1988 57.62 32.53 38,009
1987 57.86 37.84 22,035
1986 48.4 34.9 19,944
1985 51.8 33.74 15,436
1984 38.39 30.17 11,403
1983 42.55 31.73 9,009
1982 38.09 31.72 8,354
Year Max. Rate Min. Rate Number
1993 62 28 131,841
1992 64 28 122,786
1991 64 28 132,536
1990 60.66 34.07 129,545
1989 50.95 31.44 98,186
1988 47.97 27.61 95,999
1987 45.73 28.6 84,168
1986 43.71 30.07 88,303
1985 39.99 27.97 84,728
1984 37.94 27.86 86,097
1983 37.65 27.36 83,738
1982 36.02 26.26 82,204
Between $1,000.01 and $2,500
Year Max. Rate Min. Rate Number
1993 36 20 141,923
1992 46 26 130,258
1991 46 27 129,038
1990 46.97 27.2 141,234
1989 41.98 24.99 122,530
1988 38.68 22.31 125,848
1987 37.31 23.17 121,372
1986 38.28 26.10 110,352
1985 36.5 22.86 111,171
1984 28.96 23.81 98,338
1983 31.14 22.98 83,987
1982 29.29 21.48 79,024
Year Max. Rate Min. Rate Number
1993 31 16 56,625
1992 40 24 49,487
1991 41 24 48,489
1990 42.29 24.76 60,901
1989 36.12 22.98 46,317
1988 33.98 21.44 16,916
1987 32.06 21.42 39,901
1986 31.19 21.71 34,580
1985 31.15 20.68 36.,202
1984 26.54 21.11 29,230
1983 27.04 20.83 23,149
1982 24.84 18.64 21,283
Sample of Loans made by Supervised Lenders in 1993
LOANS $300 AND BELOW
Company # of Loans @ $300 and below Total of all Loans @ $300 below A,B,C,D,E (28) lenders' percentage of loans made Other (520) supervised lenders of loans made Total Loans Max. Rate Filed Average Rate Charged
A (8 offices) 14,025 17,871 130 120%
offices) 13,368 17,491 130 126%
office) 5,064 8,183 258 126%
offices) 4,607 9,366 120 120%
offices) 4,227 7,485 180 126%
offices 41,291 80,614 51.62% 48.38%
Other supervised lenders = 520 offices = 39,323 loans = 76 average number per office
A, B, C, D, and E lenders = 28 offices = 41,291 loans = 1475 average number per office
Compan # of loans @
$300-$1,000 Total of
loans made Total
A (8 offices) 3,846 17,871 130 82%
B (6 offices) 4,118 17,491 130 88%
C (1 office) 3,119 8,183 98 88%
D (9 offices) 3,750 9,366 120 120%
E (4 offices) 3,258 7,485 180 81%
offices 18,091 131,841 27.44% 72.58%
Other supervised lenders = 520 offices = 113,752 loans = 218 average number per office
A,B,C,D, and E lenders = 28 offices = 18,091 loans = 646 average number per office
Company # of
below Total of
and below A,B,C,D,
percentage Other 465
loans made Total
A + 50
Offices 3,300 76,310 48% 48%
B + 25
Offices 1,307 24,996 48% 48%
C + 4
Offices 7,321 15,036 30% 30%
C + 1
Office 513 1,080 36% 36%
E + 3
Offices 269 2,894 36% 36%
Offices 12,710 80,614 15.76% 84.24% 120,316
Company # of Loans @ $300-
$1,000 Total of all Loans @ $300 - $1,000 A,B,C,D,E (83) lenders' percentage of loans made Other 465 Supervised lenders of loans made Total Loans Max. Filed Average Rate Charged
A 50 Offices 30,385 76,310 48% 48%
B 25 Offices 8,965 24,996 48% 48%
C 4 Offices 4,277 15,036 30% 30%
D 1 Office 331 1,080 36% 36%
E 3 Offices 867 2,894 36% 36%
Total Offices 44,825 131,841 33.99% 66.01% 120,316
Senator SHORT spoke on the report.
On motion of Senator SHORT, with unanimous consent, ordered to be printed in the Journal of Friday, March 3, 1995.
The following Bill was read the third time and having received three readings in both Houses, it was ordered that the title be changed to that of an Act and enrolled for Ratification:
H. 3649 -- Reps. Jennings, J. Harris and Kinon: A BILL TO PROVIDE THAT THE BOARDS OF TRUSTEES OF THE SCHOOL ADMINISTRATIVE AREAS OF MARLBORO COUNTY ARE ABOLISHED AND THEIR POWERS AND DUTIES DEVOLVED UPON THE MARLBORO COUNTY BOARD OF EDUCATION, AND TO PROVIDE THAT THE ABOVE PROVISIONS SHALL NOT BE DEEMED TO ABOLISH THE ADMINISTRATIVE AREAS THEMSELVES.
(By prior motion of Senator ELLIOTT)
The following Bill was read the third time and ordered sent to the House of Representatives:
S. 585 -- Senator Reese: A BILL TO AMEND ACT 813 OF 1946, AS AMENDED, RELATING TO THE CREATION OF THE SPARTANBURG MEMORIAL AUDITORIUM COMMISSION, SO AS TO CHANGE THE COMPOSITION OF THE COMMISSION.
(By prior motion of Senator COURTNEY)
At 11:40 A.M., on motion of Senator COURSON, the Senate adjourned to meet next Tuesday, March 7, 1995, at 12:00 Noon.
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