Legislators in the South Carolina Senate are currently considering S. 910, which would place significant regulations on short-term small-dollar installment loans and severely limit consumers' access to these lending products, making South Carolina one of the strictest regulators of these consumer products. S. 910 is flawed due to the geographic marketing restrictions, arbitrary restrictions on loan renewals, and an ability to repay mandate.
Geographic Marketing Restrictions
An analysis by the nonpartisan South Carolina Policy Council found that the bill would restrict lenders' ability to market their services to nearly 50 percent of the state's geographic area. The confusing and expansive definition of low-income areas would impose significant regulatory operating costs in the state, causing many lenders to reconsider operating in South Carolina.
Arbitrary Restrictions on Loan Renewals
The bill also places arbitrary restrictions on loan renewals, removing market forces and consumer choice. These restrictions assume consumers cannot be trusted to choose if they would like to renew or extend a loan by imposing strict state regulations. Consumers are oftentimes the most well-informed about their current financial situation and are in the best position to decide if they would like to modify their loans or apply for new credit.
Ability to Repay Mandate
Further, S. 910 would require lenders to adopt an ability-to-repay (ATR) analysis, which is already a standard business practice for providers of these types of credit. Imposing a mandate would create additional regulation and stifle innovation. Providers of this type of credit in the Fintech space are constantly developing new ATR models, reducing risk, and allowing more qualified consumers to qualify for loans. Lenders should be able to continue to use industry adopted ATR standards.
Conclusion
If enacted, the vast majority of financial institutions that provide credit to low-income, and subprime consumers in South Carolina would be unable to operate effectively, resulting in a loss of credit available to consumers who use these products. The vast majority of consumers who take out these short-term loans do so to cover utilities, emergency car repairs, rent, disruption of income, or debt consolidation. Lawmakers should carefully examine this complex legislation, which has advanced out of the Senate Labor, Commerce, and Industry Committee, before imposing these price controls and reject this legislation and its effects on taxpayers.