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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
Commissioner.

4. Interest Rates

Cap the interest rate on loans by size of loan. Tie those caps to a defined prime rate.

5. Collateral

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

7. Other

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.

EXHIBIT 5B

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%

Supervised Lenders

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%

EXHIBIT 5C

TOTAL PAID TO MS.P THROUGH REFINANCINGS: $56.51

Outstanding Balance: $350.00

PAYMENTS TO THE FINANCE COMPANY

DATE AMOUNT PAID

3/29/91 $52.25

4/12/91 $57.75

5/22/91 $52.25

7/25/91 $52.25

8/23/91 $34.25

10/11/91 $55.00

11/08/91 $54.25

12/14/91 $24.04

3/04/92 $52.25

6/02/92 $46.72

6/17/92 $55.00

7/06/92 $35.00

8/10/92 $55.00

7/20/92 $49.50

TOTAL RECEIVED BY FINANCE COMPANY FROM MS. P: $675.51

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

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.

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.

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

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.

Respectfully submitted,
/s/Susan B. Berkowitz

EXHIBIT 6

The Honorable Linda H. Short
Chairman
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

Thank you for allowing us to clarify this matter.

Thanking you, I am,
Sincerely,
KNEECE, KNEECE & BROWN
/s/By: Robert E. Kneece

EXHIBIT 7

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

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