Indicates Matter Stricken
Indicates New Matter

The House assembled at 10:00 A.M.
Deliberations were opened with prayer by the Chaplain of the House of Representatives, the Rev. Dr. Alton C. Clark as follows:

Most gracious God, we give our hearty thanks for this good State in which we live and for which we labor, for the freedoms we enjoy, for the privileges which are ours, and for the opportunities which open up to us everyday. Keep us conscious of the responsibilities laid upon us everyday to so live and labor that freedom may continue felt and practiced all around. Help us to yield ourselves to Your guidance - to a God Whose strength is sufficient, Whose love is inexhaustible, and Whose teachings endure to all generations. And to You, Lord, be the glory forever and ever. Amen.

After corrections to the Journal of the proceedings of yesterday, the SPEAKER ordered it confirmed.

This report is based upon a joint legislative study of the consumer lenders and related businesses. This study was commenced pursuant to Act 135 of 1995. The committee members included: Senators "Greg" Gregory, Darrell Jackson, and Linda Short; Representatives Margaret Gamble, Herb Kirsh, and James Law; C. Dean Bratton, Director of the Consumer Finance Division of the State Board of Financial Institutions; and Phil Porter, Administrator of the Department of Consumer Affairs and State Consumer Advocate. The committee elected Senator Linda Short as its chairperson and Representative Margaret Gamble as its vice-chairperson.

Credit Insurance
A.   Should credit insurance rates be established by the General Assembly or by the Department of Insurance? Should the rates be established on the basis of a minimum required loss ratio or upon a fixed monetary amount?
Credit insurance rates should be regulated by the Department of Insurance. However, the General Assembly should set a minimum required loss ratio by which rates should be determined. The lower the loss ratio, the higher the profit margin for credit insurance companies and therefore the more that the borrowers are overcharged. According to the Department of Insurance, the loss ratio in South Carolina in 1996 was 35%. The National Association of Insurance Commissioners recommends a minimum 60% loss ratio for credit insurance companies, which is appropriate for South Carolina. South Carolina rates are among the highest in the nation; the loss ratio is among the lowest. Clearly, South Carolina citizens, almost all of whom at some point purchase credit life insurance, are being significantly overcharged. Our border state, North Carolina, charges $0.50 per $100, compared to $0.65 per $100 in South Carolina. South Carolina's citizens have every right to fair and equitable treatment by the credit life industry.
B.   Should both gross indebtedness (principal plus finance charges) coverage and net payoff indebtedness (principal only) coverage be allowed?
Both gross indebtedness (principal plus finance charges) coverage and net payoff indebtedness (principal only) coverage should be allowed. There should be flexibility in the coverages offered.
C.   Should commissions earned by the lender on credit insurance products be restricted?
YES. The ability of the lender to earn premiums on the sale of credit insurance gives the lender the incentive to "push" insurance products.
D.   When included in a consumer credit transaction, should credit life insurance coverage (for which premiums are calculated on the basis of the number of years of the loan) be required to be in effect for the entire duration of the loan?
YES. It is unconscionable that a person would be sold coverage that expires before the obligation to repay the loans expires. The borrower receives an insubstantial benefit from this transaction.
E.   Should continuing education requirements be established for persons selling credit life insurance?
NO. The tremendous turnover in employment with consumer finance companies makes this impractical. It should be left up to the discretion of the Director.

Reactions to Act 135 of 1995
A.   Should the pamphlet distributed with consumer loans be revised to provide more balanced information?
YES. The pamphlet circulated by the Department of Consumer Affairs is misleading because it provides substantially more information about how the consumer can avoid payment of debts incurred without presenting a sufficient amount of information about the consumer's responsibility to pay debts incurred.
B.   Should the threshold at which supervised lenders must lend at restricted lender rates be increased or indexed to inflation?
YES. Currently, for loans less than $600, "supervised lenders" (whose rates are ordinarily not restricted) must lend at the legally allowed rate for "restricted lenders." This requirement is easily avoided by simply making a loan for an amount slightly greater than $600, without any limit on the amount of the finance charge. This reality places restricted lenders at a competitive disadvantage. The average loan amount by restricted lenders was $510 in 1996, up more than 12% from the average amount of $455 in 1994. Therefore, the $600 threshold should be raised to $800 and indexed to inflation.
C.   Should the General Assembly repeal the prohibition against more than one refinancing of a loan within a 15-month period in which the customer receives cash proceeds equal to less than 10% of the prior net loan balance being refinanced?
NO. The 1994 Joint Legislative Committee to Study Consumer Finance issues recommended legislation to control the number of loan renewals which provide no or insubstantial additional funds for the consumer. The committee believed, based on testimony and evidence, that "flipping" of loans would be discouraged by this limitation. Prior to the 1995 legislation which made this change, the information maintained by the State Board of Financial Institutions did not reflect the number of renewed loans which fell into this category, meaning that it is not possible to compare the 1996 data to data from any prior year to determine if a difference has been made. Given these circumstances, there has not been any compelling evidence presented which would cause the committee to disturb the 1994 committee's findings and recommendations.
D.   Should the monthly maintenance fee earned by restricted lenders be increased by $1 per month?
NO. The consumer loan industry's recent experience with charge-offs is consistent with a national trend toward increased consumer defaults and bankruptcies. Consequently, the changes made by Act 135 of 1995 did not cause any increase in the operating costs and losses of consumer lenders. Furthermore, adjustments of restricted lender rates were made in 1995 in an effort to establish revenue neutrality with regard to the changes made therein. Therefore, the fee structure adopted in Act 135 of 1995 should be continued.

Guaranteed Auto Protection
A.   Should Guaranteed Auto Protection (GAP) coverage continue to be regulated as an insurance product (insurer treatment), requiring no legislative change, or should GAP coverage be regulated as a debt cancellation waiver (lender treatment), requiring a legislative change?
GAP coverage should be regulated as an insurance product. Regulation as an insurance product means that the rates and forms for GAP coverage are approved by the Department of Insurance.
B.   Should the commissions on the sale of GAP coverage be restricted?
YES. GAP coverage is different from other insurance products because the incentive to "push" the product is greater when commissions are allowed without restriction.
C.   Should the Consumer Advocate engage in an education campaign regarding GAP coverage?
YES. An education campaign initiated by the State Consumer Advocate could have the double benefit of informing borrowers of the potentially benefits of GAP coverage while at the same time informing them about the rights and responsibilities associated with GAP coverage.

Mortgage Guaranty Insurance
Should the State of South Carolina enact specific legislation regulating mortgage guaranty insurance cancellation?
NO. Rather than enacting legislation, the General Assembly should memorialize Congress to enact legislation on this issue, without preemptive language.

Title Loans
A.   Should a provision be enacted to prohibit a company from engaging in the lease-back of a vehicle to the consumer in exchange in for an advance of money secured by a motor vehicle title?
YES. Specifically including this provision would protect consumers from potentially higher fees charged by lenders attempting to avoid characterization of the transaction as a loan.
B.   Should title lenders be regulated like supervised lenders, with rate deregulation above $600, or like pawnbrokers, with limitations on the fees charged and the duration of transactions?
Title lenders should be regulated as pawnbrokers. Regulation as a pawnbroker would allow the lender to earn higher fees on small loans (less than $600) than they are currently allowed to earn as a supervised lender. Consumers are protected because there is a cap on the interest that a pawnbroker may earn, so title lenders could not charge unlimited rates. The caps on pawnbroker rates would cut the rates that title lenders earn almost in half for amounts greater than $600. In states where title lenders are regulated as pawnbrokers, the rate of customers paying out within 30 days is higher. The current pawnbroker law should be amended to specifically allow the title to a vehicle to be held rather than require the actual taking of possession of the vehicle.
C.   How should the sales of repossessed vehicles be addressed?
Title lenders should sell repossessed vehicles in the same manner as a "commercially reasonable sale" under the Uniform Commercial Code (UCC). Under the UCC, the sale of a repossessed vehicle is subject to the "no breach of the peace rule," must be conducted in a commercially reasonable manner after reasonable notification to the debtor, and the debtor is entitled to any surplus of the sales proceeds over the loan balance plus the expenses of the sale. Because a title loan is very similar to a traditional loan using an automobile as collateral, it is appropriate that vehicles subject to a title loan be disposed of in a similar manner.

Check Cashing/Deferred Presentment
A.   Should "check cashers" and "deferred presentment services" be regulated as discrete industries, with separate licenses required for each industry, or should they be regulated as one industry under the label "check cashing services?"
The business of deferred presentment services and check cashing services are very different and should be regulated as discrete industries.
B.   What, if any, should be the maximum charge(s) for cashing government checks, payroll checks, and personal checks?
The maximum charge for cashing government checks should be 2% or $3, whichever is greater. The maximum charge for cashing printed (typewritten or computer generated) payroll checks should be 2% or $3, whichever is greater. The maximum charge for cashing all other types of checks (including handwritten payroll checks) should be 7% or $5, whichever is greater.
C.   Should cashing or advancing money on a postdated check, or deferring presentment or deposit of a check be prohibited? If not prohibited, what, if any, should be: (1) the maximum charge for deferring deposit of checks; (2) the maximum deferral amount; and (3) the maximum deferral period? If not prohibited, should there be a prohibition on, or a limitation on, renewal of deferred deposit transactions upon and after expiration of the original deferral agreement?
Deferring presentment of a check should not be prohibited. The cost of "bouncing" a check is high and getting higher. The cash advance services industry is an alternative to high overdraft fees. The market for these services exists because customers want and need a fast, courteous, and professional alternative to bouncing a check. Customers needing to borrow $100-$300 are vastly under-served by traditional consumer credit options, as less than one-half of one percent of all loans made by restricted lenders are for amounts of $150 or less.
The maximum charge for deferring presentment of a check should be 12% of the face amount of the check. The maximum amount of a check which may be deferred should be $300, exclusive of the fee imposed. The maximum duration of a deferred presentment transaction should be 31 days. Renewal of the transaction beyond the term of the initial transaction should be prohibited.

Annual Reports
A.   Should annual reports of restricted and supervised lenders be the same (loan amounts, etc.)?
YES. Restricted and supervised lenders are restricted to the same rates at amounts less than $600 under current law. The reports prepared by the State Board of Financial Institutions should be written so that a comparison can be made of loan activity among the different classes of lenders at the same dollar amounts.
B.   Should title lenders, check cashing services, and deferred presentment services be listed under separate reporting categories on annual reports of the State Board of Financial Institutions?
YES. Separate reporting categories are appropriate for each of these industries.

The Committee thanks the following persons whose testimony made this report possible:

Reactions to Act 135 of 1995
George Powell, Consumer Finance Division, State Board of Financial Institutions
Sue Berkowitz, South Carolina Legal Services Association
Derial Ogburn, Executive Director, South Carolina Financial Services Association
John Ruoff, South Carolina Fair Share
Charlie Walters, Independent Consumer Finance Association

Mortgage Guaranty Insurance
Lee Jedziniak, Director, Department of Insurance
Dean Kruger, Director of Forms and Rates, Actuarial Services, Department of Insurance
Jerry Fowler, Real Estate, Agent and Broker, ReMAX
Richard L. Gray, Vice President, General Counsel, United Guaranty Residential Corp.
David Whitener, Real Estate Attorney

Guaranteed Auto Protection
Lee Jedziniak, Director, Department of Insurance
Dean Kruger, Director of Forms and Rates, Actuarial Services, Department of Insurance
Maria Guttuso, JM&A Group

Title Loans
Sue Berkowitz, South Carolina Legal Services Association
Robert Reich, President, Title Loans of America
John Ruoff, South Carolina Fair Share

Check Cashing\Deferred Presentment
William Bowden, check casher, Columbia
Moffatt Burriss, Executive Vice President, BIPEC
John Caudle, South Carolina Check Cashers Association
Brenda McKenzie, National Cash Advance
John Ruoff, South Carolina Fair Share
William Webster, President and Chief Executive Officer, Advance America
Wally Zonich, President, Check Masters, North Charleston

Credit Insurance
Lee Jedziniak, Director, Department of Insurance
Leslie Jones, Deputy Director, Life/Accident Chief Actuary, Department of Insurance
Sue Berkowitz, South Carolina Legal Services Association
Lloyd Hendricks, Executive Director, South Carolina Bankers Association
Dinnah McClain, Citizen
Walter D. Runkle, Vice President, Government Relations, Consumer Credit Industry Association

Staff assistance was provided by Kenneth A. Davis, Office of Senate Research; Mary Lou Price, Senate Banking and Insurance Committee; Carmen Tevis, House Labor, Commerce, and Industry Committee, and Jo Anne Wessinger, House Labor, Commerce, and Industry Committee.

On motion of Rep. KIRSH, the report was ordered printed in the Journal.

The following Bill was taken up, read the third time, and ordered sent to the Senate.

H. 4574 (Word version) -- Reps. Limehouse, Campsen, Mack, Breeland, Whatley and Altman: A BILL TO AMEND ACT 1235 OF 1970, AS AMENDED, RELATING TO THE CHARLESTON COUNTY AIRPORT DISTRICT AND ITS GOVERNING BOARD, SO AS TO ADD THE MAYOR OF MOUNT PLEASANT, EX OFFICIO, TO THE GOVERNING BOARD OF THE DISTRICT.

At 10:05 A.M. the House in accordance with the ruling of the SPEAKER adjourned to meet at 12:00 Noon, Tuesday, February 10.

This web page was last updated on Monday, June 29, 2009 at 10:34 A.M.