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Nonprofits: Fighting poverty means battle over payday lending
By Jason Lesley
South Carolina’s politicians have not shown enough interest in regulating lending laws that take advantage of poor people, according to Sue Berkowitz, director of the S.C. Appleseed Legal Justice Center.
She spoke to representatives of non-profit groups at the Bunnelle Foundation recently about payday lenders and the grip they have on the legislature and many of the state’s less fortunate citizens.
Berkowitz said her organization’s mission is to end poverty by fighting economic, legal and social injustice. The Bunnelle Foundation has adjusted its mission in order to address the root causes of poverty rather than the symptoms.
“Payday lenders work diligently — and succeed — in keeping poor people poor,” said Geales Sands, executive director of the Frances P. Bunnelle Foundation.
As a young consumer lawyer in 1995, Berkowitz said she was shocked to see finance companies charging interest rates of 70, 80 or 90 percent. Any rate was legal in South Carolina, she said, because it is a deregulated state. She said one of her clients was a woman on Supplemental Security Income with six or seven loans. “Probably, the longest relationship in her life had been with a finance company manager,” Berkowitz said. “We wanted to see if we could get interest rates capped, so in 1995 we mounted a huge effort on behalf of this client. Folks who were taking money out of our communities and lining their pockets wanted nothing to do with regulating interest rates.”
As an example, Berkowitz showed how one client had borrowed $350 and through a series of renewals during a year had paid $650 in interest but none of the principal.
“We did get some regulation done,” Berkowitz said. “For very small loans, lenders will never charge over 80 or 90 percent interest. If you make a loan under $600, then you are limited to rates you can charge. That’s why auto title loans are all over $600 — they call themselves ‘601 Lenders’ so they can charge 200-300 percent interest.”
Payday lending is even more lucrative, Berkowitz said. Borrowers write the lender a check with the agreement it will not be cashed until they get paid. “On a $600 loan for one month, the interest amounts to $150,” Berkowitz said. What are the chances I have $750 at the end of month if I’m borrowing $600 at the beginning? They say, ‘That’s OK. Give us $150, and we’ll flip the loan.’ A woman in nine months borrowed $1,200 and paid back $2,500, but because of the way she paid she owed the company $2,000. We filed a bankruptcy for her.”
Berkowitz called payday lending legalized check kiting. “You are writing it, knowing it will bounce,” she said. When they were confronted with accusations of exorbitant interest rates, payday lenders began calling their charges fees.
“Payday lenders made more than 4.5 million loans in 2008,” Berkowitz said. “That’s more than this state’s population. What we’re talking about is a small group of people taking out a lot of loans. This is a huge business with lenders loaning out the same principal over and over again and people paying hundreds and hundreds in fees to avoid their checks bouncing. We had to do something to change the way the industry was doing business. It was legal loan sharking.”
South Carolina attempted to change the law, limiting companies to making one loan at a time for no more than $300. Loopholes allowed lenders to work around the law. “The worst I saw,” Berkowitz said, “was a woman with 22 payday loans. This is why the offices are so close to each other. They can go next door to Check Into Cash and borrow $300 and use that to help pay Advance America.”
Berkowitz said a woman in Saluda stopped going to church because her debts prevented her from tithing. “We are talking about $150 million in charges taken out of the low wealth community,” Berkowitz said. “You want to talk about how we help infuse money into a community and make life better. Keep that $150 million in the community.”
She said it was commonplace for loan victims to be paying $500 a month in interest charges and fees. The average payday borrower takes out eight loans a year.
The state has further restricted payday lenders by requiring them to be registered and to record loans in a database. That has opened the door to out-of-state lenders operating on the Internet, Berkowitz said.