‘Egregious’ predatory lending in SC targets vulnerable people. Lawmakers are fighting back

After working 37 years for about 50 different credit unions in the U.S. and abroad, Kerri Smith never imagined that her elderly mother would become a victim to a predatory loan. But to her dismay, it happened.

While suffering from dementia, and burdened with expensive medication, Smith’s mother, Willie Hancock, who was 72 and living alone, began foregoing meals to make payments on a short-term loan she’d received from an installment lender in South Carolina.

Hancock, unable to keep up with the lender’s payments — and in declining health — soon moved in with her daughter, Smith, a credit and lending expert. It was then Smith discovered the predatory lending trap her mom had fallen into, she said.

“We noticed (my mom) started losing weight. She was depressed and struggling, and we thought it was something medical going on,” Smith said. “After moving her in with us, I canceled her cell phone and placed her under my plan, and after we did that, I began getting collection calls from an installment lender.”

Smith’s story is one example of what critics classify as a years-long predatory lending problem in South Carolina, where payday and installment lenders target vulnerable and low-income communities with offers of quick cash, only to lock them into perpetual debt.

“Access to credit is something that I’m very keenly aware of in my daily role, and I learned about the predatory lending industry in South Carolina and how egregious it was years ago,” Smith said.

The S.C. Senate is considering a measure, S. 910, to curb predatory lending practices by blocking, among other things, an installment lender from sending unsuspecting consumers live, referred to in the industry as convenience checks in the mail, locking them into exorbitant rates, which makes it nearly impossible to pay off the principal.

A Senate subcommittee recently began taking testimony from advocates and opponents of the bill.

During a news conference last week, state Sen. Tom Davis, R-Beaufort, who chairs the Senate subcommittee, said predatory lending practices in South Carolina have gone unchecked for too long.

“A lot of these (lending companies’) business models are predicated upon the assumption that the borrower can’t repay the principal,” Davis said. “They want to keep their principal balance outstanding because they make money off the interest, which in some instances are triple figures, maybe four figures on a per annum basis.”

Advocates say some companies that offer short-term installment and payday loans have routinely targeted Black and elderly communities, who they believe will struggle to repay a loan. The practice, they say, ultimately increases the company’s bottom-line by urging vulnerable people to refinance their loans, which, in effect, adds hundreds, if not thousands, of dollars to the amount they owe.

Under S. 910, short-term unconventional lenders, would be prohibited from mailing unsolicited checks without first determining the customer’s ability to repay the loan. This would include the borrowers, and any co-borrowers, employment, monthly income and monthly expenses, along with other consumer installment or revolving credit accounts compared to the new loan.

“Payday installment lenders simply make sure that the payment is not more than the person’s paycheck or government benefits, and do not take into consideration all the borrower’s financial obligations and living expenses,” Smith said. “In my years of underwriting loans, evaluating a borrower’s ability to repay is critical to the underwriting process.”

Smith, who serves as the South Carolina regional president for Self Help Credit Union, said the lender that originated her mother’s loan was not only deceptive in their practices, but also evasive.

As time went on, the company “became more and more aggressive and said, ‘You’re responsible for this debt because you were put on the loan,’ ” Smith said. “Having a lending background, I said, ‘I never signed a security agreement, there’s no legal obligation for me to pay this loan.’ ”

The lender claimed that Smith was financially on the hook for her mother’s $700 loan because Hancock had listed Smith as a reference on the loan application. Rather than receiving a live check in the mail, Hancock got a mailer from the lender, inviting her to apply for the loan.

Hancock died in 2022 and the lending company ceased calling Smith shortly thereafter.

Smith said she never learned the name of the company that gave her mom the loan, but recalled that it was in the Simpsonville, S.C., area.

In requesting a copy of her mother’s loan documents, Smith said the company refused to turn them over, and said they needed to speak with Hancock.

“Well, I wasn’t going to subject her to that questioning, because I didn’t want them to have any access to her at that point.”

Dan Walters, president and CEO of Credit Central, an installment loan company with 31 locations in South Carolina, told lawmakers Wednesday that S. 910 would disadvantage needy South Carolinians. He maintains that his company doesn’t unfairly target low-income communities.

Walters told a panel of lawmakers that loans from his company typically come with an interest rate of around 62%.

His company assists South Carolinians “with auto repairs, home improvements, school supplies, tuition, vacation, holiday and seasonal expenses,” Walters said. “Applicants for installment loans undergo a thorough review for ability to repay, (loans) have clear terms with fully amortizing monthly payments with no hidden fees or balloon payments.”

But advocates of S. 910 disagree, and argue that companies, like the one headed by Walters, strategically target vulnerable communities during heightened times of need, such as during the back-to-school or Christmas seasons.

“All the person receiving the check does is endorse the back of the check and deposit it into their account, and they have a loan,” Susan Stall told lawmakers. Stall is the lead organizer for the SC Fair Lending Alliance, a statewide coalition working to cap interest rates on loans in S.C. at 36%.

“There is no meeting with a lender and there is no one to describe the details of the agreement,” Stall added.

Walters said while Credit Central may mail convenience checks to acquire new customers, the company provides borrowers a follow-up call, offering an opportunity for the borrower to ask questions about the loan. Once the customer deposits the check, however, they can’t decline the offer and are responsible for the loan.

“It does not behoove us to originate loans that our customers are unable to pay,” Walters said. “We are only as successful as our customers are.”

DeAsia Danladi, a former employee of an installment loan provider in S.C., told The State she became unsettled after discovering practices her former company used in securing and retaining customers.

“I think what really got me was that not a lot of people that came in really knew much about personal finance or how credit works,” Danladi said. “My manager would tell me the more (customers) refinanced their loans, the better their credit, but that really wasn’t the case.”

Critics, such as Smith and Stall, say installment loan companies have consistently pushed borrowers to refinance their loans, which keeps them locked into a perpetual cycle of debt. While refinancing may provide temporary relief and an extra bit of cash in the borrower’s pocket, the long term effects are far more damaging.

“Giving someone a loan that they cannot afford is like giving a starving person spoiled meat,” Smith said. “It will fill their belly for the day, but it’s ultimately going to make them sick.”