June 5, 2023

The Nerve

Where Government Gets Exposed

Law Creates Special License For Originators

The NerveThe S.C. General Assembly recently overturned a veto of a financial regulatory bill that Gov. Mark Sanford says is designed to benefit one company.

Sanford also objected to the bill, H. 3790, because it further regulates the payday lending industry.
Rep. Bill Sandifer, R-Oconee, proposed the legislation.

But don’t sling special-interest arrows at Sandifer yet.

Indeed, there is much more to the story. For keen and casual State House observers alike, it provides a case study in how contorted a bill can become after it is drafted into the Legislature.

“That’s exactly right,” Sandifer says.

His bill was introduced in March 2009.

The lawmaker says he sponsored it to bring South Carolina into compliance with the federal Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act of 2008, “or the feds were going to come in and do it for us.”

Sandifer is chairman of the Labor, Commerce and Industry Committee, and such matters in the House fall under the jurisdiction of the committee.

The federal SAFE Mortgage Licensing Act “gave states one year to pass legislation requiring the licensure of mortgage loan originators according to national standards and the participation of state agencies on the Nationwide Mortgage Licensing System and Registry (NMLS),” says the website of the registry.

“The SAFE Act is designed to enhance consumer protection and reduce fraud through the setting of minimum standards for the licensing and registration of state-licensed mortgage loan(s).”

The law was passed “because of the housing crisis,” says Carri Grube Lybarker, staff attorney for the S.C. Department of Consumer Affairs.

In a Gilded Age redux, the housing meltdown was prompted largely by sketchy Wall Street speculation in the subprime lending market. The housing crisis sparked the ongoing Great Recession. It also led to a tsunami of foreclosures that continues to ripple across the country, significantly deflating home values – regardless of whether buyers overstretched themselves in the size of their payments.

Less than one week after Sandifer’s bill was introduced last year, legislation sponsored by Sen. David Thomas, R-Greenville and chairman of the Senate Banking and Insurance Committee, was submitted.

The Thomas bill, S. 673, also was aimed at ensuring South Carolina’s compliance with the SAFE Act. But it passed in June 2009, a full year before Sandifer’s bill did.

Sanford allowed the Senate version to become law without his signature last year “because of the threat of expanded federal regulation over our state’s mortgage lending industry,” the governor wrote to House members in explaining why he vetoed Sandifer’s bill.

“Although this type of regulation is intended to protect the public, these kinds of laws ultimately decrease the number and type of available financing options and make it harder for new lenders to enter the market,” Sanford said. “In other words, consumers have fewer choices and the available options become more expensive.”

In an e-mail to The Nerve, Lybarker described the 2009 law as “a great act providing several consumer protections while being fair to the industry.”

Meanwhile, the House passed Sandifer’s bill on May 1, 2009, and sent it to the Senate.

Such a process – companion House and Senate bills moving through each chamber – is a common way lawmakers attempt to speed up the legislative process.

But the approach took a detour with Sandifer’s bill on the Senate side.

Four days after receiving the measure, the Senate shipped it to the Banking and Insurance Committee.

The bill subsequently sat in that committee for precisely 365 days, collecting dust.

Then, like an almost forgotten one-year anniversary, Thomas polled the bill out of his committee on May 5.

Polling a bill out of committee is a legislative maneuver that goes on behind the scenes. It’s where all members of a panel are contacted informally as to how they would vote on a piece of legislation, versus in an official meeting.

Sixteen of 17 Banking and Insurance committeemen (there are no women among the Senate’s 46 members) said aye to the bill; the other one did not weigh in on it.

About two weeks later, the Senate revamped the bill via a strike and insert, gutting Sandifer’s language and replacing it with the provisions to which Sanford objected.

Thomas proposed the part that the governor charged favors one company, according to the Senate journal.

It creates a special licensing classification for “qualified loan originators” who work as independent contractors for one mortgage broker firm.

In his veto message for Sandifer’s bill, Sanford said it “changes the current regulatory scheme by allowing independent contractors to obtain licenses by paying a $50 fee” instead of $750, the amount other loan originators pay.

But “the rules determining which contractors qualify for the reduced fee are drafted in such a way that only one of the nearly two hundred mortgage companies in South Carolina benefits from the change,” the governor said.

He added that the licensing system should apply “equally to all independent contractors.”

Sen. Vincent Sheheen, D-Kershaw, floated the portion of the strike and insert that addresses payday lenders.

Relating to a 2009 state law regulating payday lenders that also was enacted over a veto by Sanford, Sheheen’s amendment prohibits the businesses from being licensed as mainline supervised lenders.

Sanford said he opposes such regulations because “some people will benefit from payday-style loans and some will not, and we continue to believe that individual consumers are better equipped than a government bureaucracy to know whether a short-term loan is a wise decision in any given circumstance.”

Payday lending critics charge that the industry preys on the disadvantaged and traps many of its borrowers in a spiraling cycle of debt.

The Senate passed the amended version of Sandifer’s bill on May 25, the House concurred with the changes and the legislation went to Sanford.

The House overrode the governor’s veto of the bill on June 15; the Senate, on June 29.

For his part, Thomas disputes the notion that his amendment was geared toward one company.

He and other sources interviewed for this story mentioned Primerica, a financial services outfit based about 25 miles northeast of Atlanta in Duluth, Ga., but Thomas says “there were three companies affected” by the law.

The senator identified Farm Bureau as a second, and says the third is fairly well known but he cannot recall the name of the company.

Says Consumer Affairs attorney Lybarker, “The department is only aware of a couple of organizations that utilize a business model that would fall under this statute.”

She says one of those firms is Primerica.

The company fields offices across South Carolina, including in all of the state’s major cities.

State Ethics Commission records show that Primerica paid lobbyists more than $70,000 to represent the company at the State House over the past two years: about $10,300 to William Boan in the recently ended legislative session; and $60,000 to Mia Butler in 2009, when the bill was first introduced.

The records list David Ginn as a contact person for Primerica. Reached last week by phone, Ginn referred The Nerve to the company’s media contact, Mark Supic.

When Ginn transferred the call to Supic, a receptionist answered and said Supic was on medical leave until Monday.

A message left for Supic with a cell phone number for a reporter at The Nerve was not returned after he was scheduled to be back in his office.

Thomas says the provisions of his amendment were necessary because otherwise the state was going to put hundreds of people out of work by preventing independent contractors from being licensed as loan originators. “Tell me how that comports with a free-enterprise system,” he says, describing his amendment as pro-business.

And Thomas says it was germane to Sandifer’s bill and the federal SAFE Act.

Be that as it may, Sandifer notes, “As the bill eventually evolved, it was not my bill.”

Reach Ward at (803) 254-4411 oreric@scpolicycouncil.com.

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The Nerve