Payday loans help South Carolinians in need

[cashlenders]

'Reforming' industry would limit much-needed short-term lending tool

Thousands of South Carolinians face financial shortfalls every day -- a mother in Greenville needs to pay for her child to see a doctor after a fall in the playground; a commission-based salesman in Myrtle Beach has a dip in income during a slow period and needs help paying the bills; a student in Columbia who works two jobs while going to school needs money for additional textbooks.
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Many of these people (and their families) tell us they value having access a payday loan when they are facing a financial difficulty. Often, it is one of the few options available to consumers to regain their financial footing. At other times, it is simply the cheapest option available, especially compared to the high costs of bouncing a check or paying late fees on a credit card or utility bill, for instance.

But this short-term loan product, and its value to consumers, is often tarnished by critics who seek to take financial choices away from those who need them most -- hard-working South Carolinians.

Payday loans provide a resource for people in need of temporary financial assistance. For instance, someone with an unexpected or unbudgeted expense may take out a loan of $100 between paychecks for a $15 fee. Customers are required to show proof of identification, a source of income and evidence of an active bank account. In addition, loan amounts are made with consideration for a customer's ability to repay, and precautions are taken to ensure that they are able to do so.

Most important, the majority of South Carolinians use payday loans responsibly. They see it as a cash-flow tool that makes more sense than bouncing a check, missing a credit card payment or neglecting an outstanding bill. And they are overwhelmingly happy with the product, registering very few complaints.

Still, there are some who think the government should intervene in personal financial decisions, and take away a consumer's option of getting this kind of loan. Lawmakers in South Carolina's Legislature are debating whether this regulated product should be banned or severely restricted. In fact, some critics of payday loans are even calling their efforts to abolish this valued short-term credit option "reform."

I appreciate that one of the goals for the state's elected officials is to protect consumers. But restricting access to credit for hard-working people or completely eliminating the payday loan industry are not the answers. A recent academic study by the Federal Reserve Bank of New York shows what has happened to consumers in North Carolina and Georgia when payday loans were banned in those states. And it is not a pretty picture: people "bounced more checks, complained more about lenders and debt collectors, and have filed for Chapter 7 ("no asset") bankruptcy at a higher rate." Consumers did not benefit from the so-called protection of a payday loan ban; instead, they faced costly consequences of having fewer avenues for accessing credit.

The report also found that banning payday loans would not necessarily motivate competitors to lower prices or invent new credit products. Thus, abolishing payday loans will not help hard-working people; rather, it will harm them by reducing their options for handling financial difficulties.

Our company and other responsible lenders have pledged to work with legislators to enact reasonable legislation related to our short-term credit product, contrary to repeated insinuations from our critics. But real "reforms" would allow the continued access to payday loans while addressing the problems confronted by the small number of customers who misuse our product and put themselves in financial jeopardy.

Payday loans bridge a much-needed gap in the credit market. Banks and other financial institutions seldom, if ever, offer similar short-term loans, particularly when individuals with poor credit are involved. It would be unfortunate -- and consumers would suffer -- if the Legislature ignores the clear demand for payday loans and overly restricts access to them or takes them away altogether.