A new law took effect on Monday aimed at protecting South Carolina consumers.  This law specifically targets small dollar, short-term, unsecured loans which would include payday loans and micro-loans.

This new law is, in the words of one state representative, “to help protect consumers from themselves.”  The main provision in the law is that it limits residents in the state to one payday loan at a time, keeping them from effectively borrowing more then their base income at any given time.  Additionally it sets up a statewide database to keep track of payday loans for each consumer, again in order to keep them from having more then one active loan at a time.  A similar database is maintained by the Employment Security Commission, but is badly managed and maintained cause it to be fairly ineffective.

Additionally the law requires lenders to offer payment extensions and payment plans for borrowers that can not pay off their loans in the set time frame.  This does not cover any existing loans issued prior to the law going into effect.

I the short term this law is going to negatively impact consumers used to taking out multiple loans for between $200 and $300, limiting the amount of emergency cash they are able to obtain.  Lawmakers agree that in the short term this will hurt South Carolina’s low income consumers but is beneficial for their overall debt in the long term.