Senate debates banning so-called live checks
COLUMBIA -- South Carolina lawmakers are considering restricting or even banning so-called live checks - those unsolicited mailings that require only a signature to be cashed at the bank.
Opponents say the mailings are ripe to use in identity thefts and allow lenders to hook unsuspecting, and perhaps overly optimistic, recipients with high-interest loans when the people think they've won prizes.
"They're taking advantage of people in a weak moment," said state Sen. Jake Knotts, R-West Columbia.
Advocates said the offers are vital in an economy that's clamped down on credit. In the middle are some South Carolina lawmakers who want to beef up required warnings on the checks, but consider banning them too paternal.
"A lot of people are being tricked, they're being duped. But if we tell people what the consequences are, what the loan terms are, why can't we trust them to make their own decisions," said Sen. Shane Massey, R-Edgefield. "I just don't think we need to go so far as to ban it. Just because a person's poor doesn't mean they're stupid."
The back and forth over the checks is expected to continue on the Senate floor this week.
Knotts' proposal would make it illegal for companies to mail out checks cashable with a pen stroke. The misdemeanor would bring up to a $1,000 fine or 30 days in jail on the first offense, to up to a $5,000 fine or five years after three or more convictions.
Knotts contends that if people need a loan, they should have to apply for one and points to the national economy tanking because financial companies handed out loans to people who couldn't afford them. At least in payday lending - another industry that faces potential restrictions this year - a customer seeks out a loan and talks to a person, he said.
"You can't ask questions to a piece of paper," Knotts said.
The checks generally arrive in nondescript envelopes - as per industry standards, to cut down on theft possibilities. They are made out to a resident, and cashing them is easy.
"All they have to do is sign the back of the check and they're committed," said Sen. Thomas Alexander, R-Walhalla.
Senators who believe such decisions are a matter of personal responsibility do favor requiring companies to specify on checks, in boldface print, that endorsing them obligates the signer to a loan. And if the interest rate exceeds 25 percent, the proposal requires companies to inform consumers better rates are available elsewhere.
Sen. Mike Rose noted such warnings would not help some residents in a state with a high illiteracy rate or aid senior citizens suffering from Alzheimer's and other forms of dementia.
"How would they be able to make an informed decision?" said Rose, R-Summerville. "I'm very concerned about the people who cannot protect themselves."
Lynne Strang, a spokeswoman for Washington-based American Financial Services Association, said Friday the checks offer customers a useful, convenient service. She pointed to voluntary standards the trade group adopted more than 11 years ago that include a statement disclosing the check is a loan, not making the intended recipient liable if the check is stolen, and voiding the check after six months.
But a national consumer advocacy group maintains mailing live checks is akin to mailing active credit cards, which federal law prohibited decades ago.
"The risk of fraud is high when anyone can remove mail from consumers' mailboxes and sign these checks to get funds while leaving the consumer whose name was on the check on the hook for the debt," said Jean Ann Fox, director of financial services for Washington-based Consumer Federation of America.
She said consumers struggling with finances often are targets of the offers.
"It is very easy to get into unaffordable debt when all you have to do is sign your name for instant cash without any conversation with the lender about your ability to repay," Fox said.
Currently, eight bills regarding live checks are pending in four states, including New York, where they would ban the practice, according to the finance trade group. North Carolina requires disclosures on the checks, which is what the South Carolina bill's sponsor, Sen. Vincent Sheheen, D-Camden, said he thinks he can get through the House.