Federal and State Lawmakers Must Also Reform Payday and Auto-Title Lending Laws.
Earlier this week, it was revealed that Wellshire Financial Services, an empire of auto title lending entities, secured a $25 million low-interest loan from the federal government’s pandemic program. They were able to do this because of a loophole in the program, even though it was designed to prevent many lenders from getting assistance. South Carolina Appleseed calls upon Wellshire and other high cost lenders to return any money they received from this program and for state and federal government to reform their laws governing payday and auto-title lenders. This low-interest loan program was not intended to be used to secure triple-digit predatory loans from consumers.
Wellshire was able to secure this loan because of technicalities in how it earns profit. On paper, Wellshire does not earn much money from interest, but rather from excessive fees. In states like Texas, the company’s storefronts are organized as “credit access businesses” which supposedly caps their interest charges at 10 percent, but also allow them to charge whatever fees they want. On a $1,200 loan, one of these storefronts may legally earn only $12.96 in interest after one month, but also $377 in fees.
These entities are obviously lending organizations. If one of these companies charges a consumer $400 every month from a $1,200 loan, it shouldn’t matter if it’s classified as a fee or interest because it functions the same way for the consumer.
These lenders are two steps ahead of the law and profiting from these suspect practices, demonstrating how the system desperately needs reform. When our lawmakers fail to anticipate the creative ways lenders will extract money and resources from those most vulnerable, our communities suffer, especially communities of color. Though this scandal may have cost the American taxpayer $25 million, our report, Easy In, Impossible Out: How High-Cost Lending Devastates South Carolina Communities, released earlier this year, demonstrates how these high cost lenders have extracted countless resources from low-income and black communities for years and absent reform, they will continue.
Though creative lawyers and lobbyist may invent absurd distinctions between charging a fee and charging interest, Wellshire is still a lender. For that reason, they should return the $25 million that they borrowed from the federal government. To prevent this scandal from repeating in the future, lawmakers on the state and federal level must reform existing laws to end entities like Wellshire’s exorbitant resource extraction. Though their unethical conduct cost taxpayers a measurable $25 million this year, they cost communities across the country immeasurably more. These communities deserve better.