06:14 PM EST on Wednesday, March 9, 2005

By AMY GEIER EDGAR
Associated Press

COLUMBIA, S.C. — You've seen the ads - companies offering to give you cash while they hold your personal check for a certain period of time. In exchange, the lender charges a fee for the money borrowed.

Consumer advocates say those loans are causing credit problems for South Carolinians and the state needs to put controls on payday lending companies.

A survey of South Carolina credit counselors found that one in four clients had payday loans, according to a report released Wednesday by AARP South Carolina.

Most of those clients had multiple loans, which were contributing to the credit problems, the report found.

Financial troubles began for Columbia resident Martha Roberts when she borrowed $300 to travel to Oklahoma to visit her ill mother. After the payday lender tacked on fees, Roberts owed $345 - and her Social Security only brings in about $760 a month. When she had difficulty paying back the loan, she took out another one - beginning a financial nightmare that lasted several years, involving thousands of dollars she owed on up to 19 loans and threatening phone calls from the lender.

"I wouldn't recommend them to anyone," Roberts said. Under state law, a payday lender can advance money - up to $300 - to borrowers for a fee of no more than $15 per $100 borrowed for a period not to exceed 31 days. The borrower gives the lender a check, and the lender holds the check for a period of time, as agreed to in a written contract, before presenting it to the borrower's bank. The lender cannot renew or "flip" the loan with the borrower.

The counselors surveyed said the problem of payday loans has been growing. In 2003, payday lenders charged $122 million in fees on more than 3.5 million loans in South Carolina. And the number of licensed payday lending locations statewide doubled to 988 in 2004, up from 463 in 1999, said AARP lobbyist Teresa Arnold.

The survey found that payday lenders have threatened jail time or garnished wages to consumers who cannot repay their loans. These threats are illegal, according to the AARP.

Steve Benjamin, spokesman for the national Community Financial Services Association of America that represents the payday advance industry, said the loans are meant to be short-term and can be cheaper than other options, like credit cards.

"This is not a loan meant for someone to take out several to buy a car or to meet any long-term financial needs," Benjamin said.

Benjamin said his group represents companies that comply with state laws, fully disclose transaction terms, advertise truthfully and encourage responsible use of the service. Too often, he says, the industry is defined by its worst members.

The AARP, South Carolina Appleseed Legal Justice Center and South Carolina Fair Share are working with legislators to create limits on payday lending. The groups would like to see a bill similar to legislation recently passed in Florida that says no consumer can have more than one payday loan at a time, requires all loans to be reported to a central data system for tracking and mandates a cooling-off period between loans.

State Sens. Phil Leventis, D-Sumter, and Glenn McConnell, R-Charleston, have expressed interest in working with the groups to draft legislation addressing the concerns, said AARP State Director Jane Wiley.

The AARP sent surveys on Jan. 18 to Family Services, Inc., Consumer Credit Counseling Division; Division of the Army, Army Community Services; and Compass Carolina. Responses came from 13 credit counselors who served about 8,100 clients with credits problems over the past 12 months. The clients were in 30 out of 46 counties in South Carolina.

Benjamin also noted that the AARP survey was not a scientific study.