Banks & Banking – Maximum Rate Schedule – Failure to File or Post – Refunds Required

Since the defendant-lender never filed its maximum interest rate schedule with the Department of Consumer Affairs, the lender is required to refund to its customers any interest it charged them in excess of 18 percent.

We reverse the circuit court’s ruling in favor of the lender.

Pursuant to the relevant version of S.C. Code Ann. § 37-3-305, a supervised lender, like defendant, may charge any rate filed with the Department of Consumer Affairs (the Department) and posted in its place of business (in this case, that would be the online-only lender’s website). However, pursuant to the plain language of S.C. Code Ann. §§ 37-3-201(2) and 37-3-305, unless and until a lender complies with this requirement, such lender is not authorized to contract for or receive finance charges in excess of 18 percent annual percentage rate (APR).

Between October 23, 2013, and April 10, 2015, defendant made 15,000 loans to South Carolina consumers, including 1,642 loans with finance charges that exceeded 239.99 percent APR. The highest rate defendant charged was 246 percent.

If we were to allow defendant to successfully assert the defense of substantial compliance in this context, supervised lenders would be able to charge excessive rates without ever actually meeting the statutory filing and posting requirements. Because the legislature has given supervised lenders the freedom to charge such high rates, such lenders must strictly comply with the applicable statutory provisions. A defense of substantial compliance is inapplicable.

Even assuming a defense of substantial compliance were applicable, the record does not support the circuit court’s finding that the fee schedule posted on defendant’s website substantially complied with the statutory filing and posting requirements.

S.C. Code Ann. § 37-3-201(6) provides a statutory defense to a lender who neglects to properly file its rates. The lender’s rates default back to its previously properly filed rates. This defense does not apply here because defendant never filed rates with the Department.

The bona fide error defense in S.C. Code Ann. 37-5-202(7) is likewise inapplicable here. This defense is generally available to creditors while § 37-3-201(6) is a specific defense available to supervised lenders for the failure to file a maximum rate. If the defense in § 37-5-203 were available for the failure to file a maximum rate, § 37-3-201(6) would be superfluous.

The defense set out in § 37-2-202(7) is reserved for clerical errors rather than errors of law. Since the record failed to show defendant maintained procedures reasonably adopted to avoid the error, it was not entitled to the bona fide error defense in § 37-2-202(7).

Until defendant filed its maximum rate schedule, the maximum rate it was permitted to charge was 18 percent APR. Defendant did not file its maximum rate schedule until April 10, 2015. Therefore, all finance charges over 18 percent APR that it collected from South Carolina consumers from the time it began making consumer loans in South Carolina until April 10, 2015, were excess charges, which defendant must refund.

Reversed.

South Carolina Department of Consumer Affairs v. Cash Central of South Carolina LLC (Lawyers Weekly No. 011-072-21, 15 pp.) (James Lockemy, C.J.) Appealed from the Circuit Court in Richland County (Robert Hood, J.) James Cochran Copeland and Kelly Hunter Rainsford for appellant; James Becker, Mary Caskey and Sarah Spruill for respondent. S.C. App.