Indicates Matter Stricken
Indicates New Matter

The Senate assembled at 11:00 A.M., the hour to which it stood adjourned, and was called to order by the ACTING PRESIDENT, Senator PATTERSON.

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.

The committee's purpose was to study the impact of Act 135 of 1995, which made a number of changes relating to restricted and supervised lenders. Pursuant to Act 99 of 1997, the committee's scope was expanded to cover "such other matters as the committee deems appropriate." Pursuant to this authority, the committee also studied title loans, check cashing businesses and businesses deferring presentment of checks, non-file insurance, rent-to-own transactions, and repossession businesses. The committee has addressed specific questions and made specific findings with respect to each of these broad issues, as more fully explained below.

The committee held its organizational meeting on August 26, 1998. The committee then held public hearings on September 16, 1998; October 14, 1998; and November 18, 1998. Representatives from the various industries affected and persons advocating protection of consumers provided testimony during the course of these hearings.

Should the threshold at which supervised lenders must lend at restricted lender rates be increased or indexed to inflation?
NO. Raising the threshold would mean that many lenders would simply increase the amount of the loan to avoid the rate limitation, thereby increasing the overall indebtedness of consumers.

Deferred Presentment

The committee members will propose legislation making the following recommended changes to the deferred presentment law enacted in 1998:

(1) The phrase "cash advance" should be defined in the deferred presentment law as "the amount of cash or its equivalent that the customer actually receives."

(2) The face amount of a check taken for deferred presentment or deposit, including the cash advance made to the customer and the fee imposed by the deferred presentment service, shall not exceed $345.

(3) A licensee shall not charge, directly or indirectly, a fee or other consideration for accepting a check for deferred presentment or deposit greater than 15% of the cash advance made to the customer.

(4) The exemption from the other business prohibition that was previously provided for Western Union services should instead be applicable to "money transmission services," defined as the business of receiving money for transmission or transmitting money within the United States or to locations abroad by any means, including but not limited to, payment instruments, wire, facsimile, or electronic transfer.

(5) The provision that prohibits a person from being licensed to operate a video poker machine should instead prohibit a person from operating a video poker machine at the licensed deferred presentment location.

The committee members will propose legislation making the following recommended changes to the check cashing law in 1998:

(1) A separate license should be required for each location from which the business is conducted.

(2) The following exemption from the check cashing law should be revised: any person or entity principally engaged in the bona fide retail sale of goods or services, who either as an incident to or independently of a retail sale or service and not holding itself out to be check-cashing service, from time to time cashes checks, drafts, or money orders without a fee or other consideration. The exemption should apply if the person does not charge a fee or other consideration if not more than $2 or 3% of the check amount, whichever is less, is charged for the service; provided, that if a purchase is made at the time the check, draft, or money order, is cashed, no fee or consideration shall be charged for the service

(3) The $250 application fee should be required for each license and the $500 investigation fee applies only with respect to the first application, if the same person has more than one license application. The annual license renewal fee for an applicant with more than one location should l be $250 for the first location and $50 for each additional location.

(4) The requirement that "each check must be documented by a written agreement signed by both the customer and the licensee" should be deleted.

(5) The exemption from the other business prohibition that was previously provided for Western Union services should instead be applicable to "money transmission services," defined as the business of receiving money for transmission or transmitting money within the United States or to locations abroad by any means, including but not limited to, payment instruments, wire, facsimile, or electronic trans   fer.   (6) The provision that prohibits a person from being licensed to operate a video poker machine should instead prohibit a person from operating a video poker machine at the licensed deferred presentment location.

Title Loans

The committee members will propose legislation providing the following recommended legislative requirements for title loans:

(1) includes within the definition of "pledged goods" a motor vehicle certificate of title which is deposited with or otherwise delivered into

(2) includes within the definition of "title loan transaction" the pledging with a title lender of a motor vehicle certificate of title as security for a loan of money.

(3) establishes a rate structure identical to pawnbrokers;

(4) would limit a title lender to one-half of the interest on loans renewed beyond 90 days from the initial loan transaction. This provision is intended to do decrease the lender's incentive to flip loans. This provision is similar to a provision in the Georgia pawnbroker law.

(5) if a title loan remains unpaid after a period of 60 days from the due date or any renewal or extension thereof, the title lender would have the same rights as a secured party accorded under the Uniform Commercial Code (UCC) when a debtor is in default under a security agreement. All collections, takings of possession, and dispositions of collateral after default must be conducted in accordance with the UCC. All rights upon default accorded a debtor under the UCC shall apply to a title loan borrower.

(6) would prohibit a title lender from pursuing his remedies upon default unless the loan amount for the initial title loan is at least 55 percent of the fair market value (FMV) of the vehicle (determined in the same manner as for property tax determinations). This provision is designed to prevent a lender from repossessing a vehicle when the amount of loan proceeds is insubstantial in relation to the value of the vehicle.

(7) would prohibit a title lender from pursuing his remedies upon default if the borrower has paid at made payments on the principal amount of the original title loan equal to at least 100 percent of the principal amount of the original title loan plus 30 percent of the interest accrued from the time of the original title loan, provided, that no title lender shall refuse any partial payment of principal offered by a borrower. This provision is designed to prevent a lender from repossessing a vehicle when the borrower is making progress towards repaying the loan.

Should South Carolina enact legislation modeled after Florida legislation which requires registration of persons engaging in the business of repossessing property?

Yes. The repossession business has "bombshelled." There are several good repossession companies but some secondary lenders do not want to pay to have repossessions done in an effective way. Regulation will reduce the number of undesirables in the business.

Non-file Insurance
A. Should state law continue to permit non-file insurance to be charged by lenders in lieu of filing a financing statement (form UCC-1) to record the lender's security interest in the property?
Yes. Non-filing insurance is true insurance which is purchased from a third party insurance company by the lender in lieu of perfecting a security interest in the collateral pledged by the borrower.

It is cheaper to the borrower to pay a non-filing insurance fee than a recording fee, because in addition to a recording fee, upon repayment of the debt, the borrower can be assessed an additional amount to have the lien released.

B. Should non-file insurance be allowed when the lender has a "purchase money security interest" (the seller of goods extends credit for the purchase price of the goods and takes a security interest in the goods) in the collateral?
No. A purchase money lender can perfect his security interest without filing (automatic perfection). The primary risk that the lender incurs by not filing is the loss of priority as against buyers of the goods from the debtor without notice of the lien (the "yard sale" exception).

Therefore, there is very minimal incentive to file a financing statement meaning that the lender would probably not file. When the lender is not going to file anyway, there is no need to insure his risk of non-filing, meaning that non-filing insurance is not necessary. When a security interest is automatically

C. Should non-file insurance be prohibited on renewals of the loan? (Currently, a non-file premium may be charged if the consumer pledges new collateral at the time of renewal).
Yes, unless the lender advances the borrower a greater amount of cash than the previous loan or unless the period within which a financing statement would have been valid has expired. If the lender were to file a security interest on the collateral, he would not need to refile as long as the lien is in effect. Therefore, the lender would not have to refile at the time of a renewal. Consequently, because the non-file insurance is purchased in lieu of filing, there is no need to purchase the insurance when there is no lien to be filed.

In the absence of evidence that the consumer has disposed of the collateral or of circumstances in which the lender increases the amount of the cash loaned to the borrower, lender requirements that a consumer pledge new goods at the time of the renewal seem to be aimed at making sure that the lender can collect the non-file premium.

Rent-to-own Transactions
A. Should a cash sales price or a Manufacturer's Suggested Retail Price (MSRP) be disclosed or displayed before the rent-to-own agreement is signed?
Yes, a cash sales price should be disclosed. Presentation of a cash sales price aids the consumer in determining whether he should enter into the contract. An MSRP is not always provided. Similar legislation has been enacted in California and Wyoming.

B. Should South Carolina law be amended to expressly permit insurance for damage to, or destruction of, the property to be sold under rental purchase agreements?
Yes. An express inclusion in the law would clear up an issue currently being litigated by the Department of Consumer Affairs.

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

Title Loans
Representative Elsie Rast Stuart
Ida Culler, Citizen
Larry Shaw, Chief Executive Officer, Family Service Center
Robert Horton, Citizen
Shirley Lloyd, Citizen
Danny Collins, Department of Consumer Affairs
Sue Berkowitz, South Carolina Legal Services Association

Repossession Businesses
Sue Berkowitz, South Carolina Legal Services Association
Danny Collins, Department of Consumer Affairs
Jack Freeman, Freeman and Associates (engaged in repossession business)
John Ruoff, South Carolina Fair Share

Non-file Insurance
Charlie Walters, Independent Consumer Finance Association
Lee Jedziniak, Director, Department of Insurance
Leslie Jones, Deputy Director, Life/Accident Chief Actuary, Department of Insurance
Sue Berkowitz, South Carolina Legal Services Association
Professor Marie Reilly, University of South Carolina School of Law
Tim Ryles, former Insurance Commissioner of Georgia
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; and Carmen Tevis, House Labor, Commerce and Industry Committee.

Respectfully submitted

Linda Short, Chairman
on behalf of the Committee

Senator Greg Gregory

Senator Darrell Jackson

Representative Margaret Gamble, Vice Chairman

Representative Herb Kirsh,

Representative James Law

Mr. C. Dean Bratton, Director of the Consumer Finance Division of

the State Board of Financial Institutions

Mr. Phil Porter, Administrator of the Department of Consumer

Affairs and State Consumer Advocate.

On motion of Senator SHORT, ordered printed in the Journal of Friday, February 5, 1999.

On motion of Senator PASSAILAIGUE, with unanimous consent, the Senate stood adjourned out of respect to the memory of Mr. William Ackerman of Charleston, S.C.

At 11:15 A.M., on motion of Senator JACKSON, the Senate adjourned to meet next Tuesday, February 9, 1999, at 11:00 A.M.

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