How Debt Plays Into the South Carolina Democratic Primary

(Bloomberg) -- In the 20 minutes it takes Reverend Brenda Lynn Kneece to drive from her home in Columbia, South Carolina to her church about 15 miles north, she passes by at least two dozen billboards and businesses offering payday loans.

Lynn Kneece says she's often approached at the church by people who've borrowed from these places, fallen deeply into debt, and are pleading for financial help. She works with the Appleseed Legal Justice Center, a local group that's trying to raise awareness of the problem -- especially among Democratic presidential candidates, who'll face off on Saturday in the state's primary contest.

“In this economy, a job is easy to have filled,” she said by phone from her home. If an employee misses a day or two, “she can get fired. She goes to payday lenders, borrows, and is expected to pay that back in two weeks. It's a seduction into taking what's promoted as the easy way out of trouble.”

As President Donald Trump seeks re-election on what he calls a “blue-collar boom” in economic growth and jobs, Democrats say millions of Americans aren't feeling the benefits. South Carolina, which will be the biggest and most diverse state to pick a candidate so far, offers evidence for both arguments.

It has the country's lowest unemployment rate, and two of its metro areas rank among the top 10 nationwide for labor-force growth. But Sue Berkowitz, Appleseed's director and co-author of a forthcoming report on South Carolina's household-debt problems, says she regularly hears stories from “mostly African-American women who are ending up in these horrible lending situations -- not because they're not working but because they're working low-wage jobs.”

African-Americans, who make up the majority of South Carolina's Democratic primary voters, are a particular target for predatory lenders, according to Appleseed, which says the problems of household debt should be a major focus for Democratic candidates.

Some have addressed the issue. National frontrunner Bernie Sanders introduced legislation last year to cap consumer-loan interest rates at 15%. Both he and Elizabeth Warren, who helped create the Consumer Financial Protection Bureau, have sponsored legislation to curb payday lending.

Joe Biden, who leads South Carolina polls, has a plan to forgive some student loans, but he's been criticized by some progressives over his support for a 2005 bill that weakened bankruptcy protections for households.

In aggregate, U.S. household finances are in better shape than before the 2008 crash. While debt topped $14 trillion for the first time at the end of 2019, it has declined as a share of economic output, and the cost of servicing it is lower. Those numbers only tell part of the story, though.

Headline borrowing costs are cheap, but low-income borrowers often pay much higher rates, and there are signs they're feeling financial strain. Defaults on credit cards issued by smaller banks, which often attract customers with lower credit scores, climbed to a record high in 2018, according to recent data from the Federal Reserve.

In South Carolina, about a third of people who borrow from payday lenders do so more than 10 times a year, according to data firm Veritec. In 2018, borrowers paid fees of $44 million on about 690,000 of these transactions worth a total of $292 million. The Appleseed report also points out that payday lenders cluster in regions where more people of color live, while “in predominately white areas of South Carolina, these lenders are noticeably absent.”

On her drive to church every day, Lynn Kneece sees advertisements for the lenders are especially concentrated near the Manning prison and the Fort Jackson military base, which trains half of U.S. Army soldiers.

Asked which Democratic candidates are taking the debt issue seriously, the reverend replied: “I pray some of them do.”

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Ben Holland, Sarah McGregor

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