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* 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.

COMMITTEE ACTIVITIES
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.

INDUSTRY BACKGROUND
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.

FINDING
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

RECOMMENDATION
This committee recommends that loans under $600.00 must be regulated according to the statutory requirements provided for restricted lenders (Title 34).

FINDING
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.

RECOMMENDATION
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.

FINDING
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.

RECOMMENDATION
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.

FINDING

RECOMMENDATION
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.

FINDING
The consumer currently has very little knowledge of his or her rights and responsibilities in this very complicated area of finance.

RECOMMENDATION
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.

FINDING
Testimony at the public hearings indicated that often insurance is sold to consumers when there is no potential benefit available to the consumer.

RECOMMENDATION
This committee recommends the sale of insurance where no potential benefit exists be included as an unconscionable act.

CONCLUSION

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.

Respectfully submitted,
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

COMMITTEE STAFF

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

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

During the past few months, representatives of the Consumer Finance Industry and other industry groups have been meeting with representatives of Legal Aid and Fair Share in an effort to reach an agreement regarding proposals to amend current provisions of the South Carolina Consumer Protection Code and the South Carolina Consumer Finance Act. The Independent Consumer Finance Association is committed to working with the Consumer Finance Law Study Committee and other interested parties in developing legislative proposals that properly protect the public and the legitimate business interests of the Consumer Finance Industry. The attached legislative proposals reflect an attempt by all parties to respond to issues of concern raised by the individuals testifying before the Consumer Finance Law Study Committee.

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.

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
State House
Columbia, S.C. 29202

Dear Senator:

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

I look forward to visiting with you and other members of the committee as the new session begins.

Sincerely,
Stephen H. Smith
President

EXHIBIT 3

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

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