Could a South Carolina payday lender treat a debit card payment as cash before the funds settled?

Plain-English summary

In 2017, South Carolina's consumer finance commissioner asked the Attorney General to reconsider an earlier opinion allowing debit cards as a “cash payment” on a deferred presentment transaction. The AG kept that conclusion. It found no debit card exclusion in the governing provision and declined to infer an in-person payment requirement from the statute.

The AG added a crucial timing limit. A debit card authorization alone did not mean the check was redeemed or the transaction paid in full. The lender's account had to receive the funds at settlement before the lender reported the transaction as closed to the state database. This distinction addressed the commissioner's concern that returned or fraudulent payments could make an outstanding loan appear repaid too soon.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did the AG reverse its earlier debit card answer?
A: No. It reaffirmed that a debit card could be an acceptable cash payment method under the statute.

Q: Could a lender report the loan paid when a card payment was merely authorized?
A: No. The AG said the account had to be credited at settlement first.

Q: Did paying by debit card remove the rules against overlapping transactions?
A: No. The opinion said those statutory restrictions still applied.

Background and statutory framework

The opinion interpreted S.C. Code Ann. § 34-39-270(F), which required database notice when a deferred presentment transaction was paid in full. It compared card authorization with later clearance and settlement, and supplemented the 2015 opinion only on the point when a card payment became final.

Citations and references

• The AG declined to overrule its earlier conclusion about debit cards as “cash payment.”
• It clarified that notice of payment in full was due after funds reached the lender at settlement.

Official title

On the Deferred Presentment Services Act (S.C. Code Section 34-39-110 et seq.).

Requester

Commissioner Ronald R. Bodvake, South Carolina Board of Financial Institutions.

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/january-6-2017/
• Original PDF: https://www.scag.gov/wp-content/uploads/2017/01/Bodvake-R.-OS-10104-FINAL-Opinion-1-6-2017-01222784xD2C78.pdf

Original opinion text

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Alan Wilson
Attorney General

January 6, 2017
Ronald R. Bodvake, Commissioner
Consumer Finance Division

South Carolina Board of Financial Institutions

1205 Pendleton Street, Suite 306
Columbia, South Carolina 29201

Dear Mr. Bodvake,

Attorney General Alan Wilson has referred your letter to the Opinions section requesting that we reconsider this Office's May 20, 2015 opinion addressed to Representative Edward R. Tallon, Sr. Op. S.C. Attv. Gen.. 2015 WL 3525225 (May 20, 2015). Representative Tallon requested this Office's opinion "regarding whether a licensed deferred presentment lender ["licensee"] may legally accept debit card payments for deferred presentment transactions under the Deferred Presentment Services Act." In the conclusion of the subject opinion, we stated, "[I]t is our opinion that a debit card payment is an acceptable 'cash' payment method under the Deferred Presentment Services Act." Your reconsideration request raises considerations which we address below. Law/Analvsis

As an initial matter, we note this Office recognizes a long-standing rule that it will not overrule a prior opinion unless it is clearly erroneous or a change occurred in applicable law. Ops. S.C. Attv. Gen.. 2013 WL 6516330 (Nov. 25, 2013); 2013 WL 3762706 (July 1, 2013); 2009 WL 959641 (March 4, 2009); 2006 WL 2849807 (September 29, 2006); 2005 WL 2250210 (September 8, 2005); 1986 WL 289899 (October 3, 1986); 1984 WL 249796 (April 9, 1984). Your request letter does not indicate a change in relevant legal authority. Nor has our research uncovered a modification of law which would affect the validity of our earlier opinion. Therefore, we consider whether our earlier opinion is clearly erroneous. "An opinion is clearly erroneous when, upon review, the [OJffice is firmly convinced that a mistake has been made." Op. S.C. Attv. Gen.. 1984 WL 249796 (S.C.A.G. Apr. 9, 1984); see also Op. S.C. Attv. Gen.. 2016 WL 762702 (December 20, 2016)(overruling prior opinion where this Office's interpretation of a statute's literal language led to an irrational result which "could be viewed as absurd"). We next turn to the text of South Carolina Deferred Presentment Services Act, S.C. Code Ann. § 34-39-110 et seq.(Supp. 2015), to evaluate whether our interpretation is clearly erroneous. Section 3439-270(F), which this Office interpreted in our prior opinion, states the following:

A licensee shall notify the database provider immediately when the licensee enters into a deferred presentment transaction with a person. The licensee shall submit to the database provider such information as the board requires. When the transaction is paid in full, the licensee shall designate the transaction as closed and immediately notify the database

provider. When the database provider receives notification that the transaction is paid in Rembert C.Dennis Building • Post Office Box 11549 • Columbia,SO 29211-1549 • Telephone 803-734-3970 • Facsimile 803-253-6283

Ronald R. Bodvake
Page 2
January 6, 20 1 7

full, the database provider immediately shall designate the transaction as paid in full in the database. For purposes of this subsection, an item is paid in full when the pavor bank

makes final payment on the customer's check pursuant to Section 36-4-215 or the customer has redeemed the check with a cash payment in full.

S.C. Code Ann. § 34-39-270(F) (emphasis added).
The reconsideration request first assigns error as follows, "[T]he legislature chose not to include debit cards as a form of acceptable payment specifically stating that the customer could redeem the check

with a cash payment." Our May 20, 2015 opinion addressed this concern at length. Rather than repeat our explanation in full, we refer you to that opinion. See Op. S.C. Attv, Gen.. 2015 WL 3525225 (May

20, 201 5).' Upon review of our prior opinion, we find the explanation contains sound legal reasoning and an accurate application of the rules of statutory construction.

We therefore decline to overturn our

opinion as clearly erroneous on this basis.
As a second basis for error, the reconsideration request quotes from the "South Carolina Education Lottery Act." S.C. Code Ann. § 59-150-10 et seq. (1976 Code, as amended). In particular, Section 59-150-70(D)(2) authorizes the South Carolina Lottery Commission board to adopt regulations

specifying the "sale price of lottery game tickets or shares and the manner of sale except that all sales must be for cash only. Payment by checks, credit cards, charge cards, or other form of deferred payment and payment by debit card are prohibited." The reconsideration request posits the following: In the construction of this section it is clear that the legislature viewed debit cards as an alternative payment method and not the same as cash. While this law specifically prohibits payment by debit card the Division feels that it parallels the Deferred

Presentment Services Act by imposing an inconvenience to consumers in an effort to deter repeated or excessive use.

This Office disagrees with this conclusion.

As noted in the reconsideration request, Section 59-150-

70(D)(2) specifically prohibits payment by debit cards.

In contrast, Section 34-39-270(F) does not

mention debit cards. If the Legislature intended to exclude debit cards from the term "cash payment," such exclusion likely would have been expressly stated as it was in Section 59-150-70(D)(2). As a third basis for error, the reconsideration request maintains that allowing debit card payments as cash payments has resulted in avoidance of "the built in deterrent established by the legislature." The letter states as follows:

By requiring a cash payment, the consumer had to visit the office and redeem their check, then wait one or two full days depending on the number of transactions previously entered into before being allowed to return to the office and write a new transaction. The Division feels the legislature included this to act as a form of deterrent to prevent consumers from remaining in the cycle of debt. It created some measure of inconvenience while still allowing access to short term, small dollar credit. Alternatively, if the check was deposited the consumer had to wait a minimum of 4 days from the date of deposit under NACHA rules to ensure the payee bank had received payment. This waiting period See also Ronald J. Mann, Making Sense of Payments Policy in the Information Age. 93 Geo. L.J. 633, 649-650 (2005) ("[P]ayments made with a debit card are just as final as if they had been made with cash.").

Ronald R. Bodvake
Page 3
January 6, 20 1 7

allowed time for the consumer to consider alternative sources. As a result of your interpretation, industry is now allowing the consumer to call the office and pay with a debit card and then come into the office the next day to 're-write' the deferred presentment transaction. Again, we look to the text of the Deferred Presentment Services Act to determine whether our prior opinion is inconsistent with deterrents established by the Legislature or otherwise conflicts with legislative intent.

The General Assembly explicitly prohibited licensees from entering into deferred

payment transactions with a customer who has an outstanding deferred payment transaction and

established time periods delaying licensees from entering into subsequent deferred payment transactions

with customers in Section 34-39-270(A).

These prohibitions include licensees entering into a deferred

presentment transaction with a person who has previously repaid such a transaction on the same business

day, who has previously repaid such a transaction on the same business day or previous business day if the transaction would be the customer's eighth or more transaction within a calendar year, or who has

entered into an extended payment plan agreement with any licensee which has not been paid in full or terminated. ]dL

Our prior opinion does not contradict these prohibitions.

Further, we are unable to

discern a legislative intent either to require customers to make payments in person or to otherwise

inconvenience customers. Mitchell v. City of Greenville. 41 1 S.C. 632, 634, 770 S.E.2d 391, 392 (2015) ("The cardinal rule of statutory interpretation is to ascertain and effectuate the legislative intent whenever possible."). This Office has previously opined that where there is no express limitation, as in Section 3439-270(F) for payments to be made in person, "the law will not permit such a limitation to be implied." Op. S.C. Attv. Gen.. 2006 WL 2593082 (August 24, 2006). We therefore decline to overturn our opinion as clearly erroneous on this basis. As the final basis for error, the reconsideration request notes examples of debit card payments which were returned unpaid or as fraudulent charges resulting in customers with multiple transactions

open at the same time in the database. As discussed above, licensees are prohibited from entering into a deferred presentment transaction with a customer who has a such an outstanding transaction by the express terms of Section 34-39-270(A)(l).

In order for licensees to be able to determine whether a

customer has an outstanding deferred presentment transaction, the legislature required licensees to immediately notify the database provider when a customer has paid a transaction in full. S.C. Code Ann.

§ 34-39-270(F).2 However, an item is not paid in full until "the payor bank makes final payment on the customer's check" or "the customer has redeemed the check with a cash payment in full." Id. While our prior opinion found that a debit card payment is an acceptable cash payment method, it did not state when a debit card payment redeems a check in full. Based on the examples of debit card payments which were returned unpaid, it appears that some licensees have prematurely notified the

2 See 2009 Act No. 78, § 2, codified at S.C. Code Ann. § 34-39-270, titled in part: AN ACT TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976... BY ADDING SECTION 34-39-270 SO AS TO PROHIBIT A DEFERRED PRESENTMENT PROVIDER FROM

ENTERING

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WITH

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Ronald R. Bodvake
Page 4
January 6, 2017

database provider that transactions are paid in full. In NACS v. Bd. of Governors of Fed. Reserve Svs.. 746 F.3d 474 (D.C. Cir. 2014), the D.C. Circuit Court of Appeals described the process underlying transactions on debit card networks. To summarize, debit cards transactions employ different methods of authentication, PIN or signature transactions, to establish that an authorized cardholder initiated the transaction. Id. at 477-478.

Under either method, the transaction is processed in three stages: At the authorization stage, the cardholder's bank

authorization, clearance, and settlement. Id. at 478.

merely determines whether the cardholder has sufficient funds in his account to complete the transaction and

whether the transaction appears fraudulent. Id.
Of particular importance to the present
reconsideration request, even if the cardholder's bank "approves the transaction, that transaction still must be cleared and settled before any money changes hands." id. Until a licensee's account is credited with

funds, the debit card transaction has not concluded, id. The examples of payments which were returned unpaid should not impact a licensee's ability to determine a customer's eligibility to enter into a deferred presentment transaction under Section 34-39-270 unless a licensee has notified the database provider that

the customer's account is paid in full prior to actually receiving funds.

To the extent our prior opinion
could be construed to require licensees to notify the database provider an item is paid in full by a debit card transaction before settlement, we take this opportunity to supplement our conclusion. It is this Office's opinion that a court would likely find a licensee's duty under Section 34-39-270(F) to notify the database provider that a transaction is paid in full does not accrue until the licensee's account is credited at the settlement phase of a debit card payment transaction process.

Conclusion
Upon review of our May 20, 2015 opinion, we find it contains sound legal reasoning and an

accurate interpretation of the law. This Office therefore declines to overrule our prior opinion that a "cash payment in full" under S.C. Code Ann. 34-39-270(f) includes payments made by debit card. However, we take this opportunity to clarify that a payment made with a debit card should not be considered a cash

payment in full until a licensee receives funds at the settlement phase of the transaction. We hope the guidance provided above will assist you and the South Carolina Board of Financial Institutions in administering the deferred presentment transaction database. This Office is, however, only issuing a legal opinion based on the current law at this time and the information as provided to us. Until a court or the General Assembly specifically addresses the issues presented in your letter, this is only an opinion on how this Office believes a court would interpret the law in the matter. Additionally, you may petition the court for a declaratory judgment, as only a court of law can interpret statutes and make such determinations. See S.C. Code § 15-53-20 (1976 Code, as amended). If it is later determined otherwise, or if you have any additional questions or issues, please let us know.

Ronald R. Bodvake
Page 5
January 6. 2017

Sincerely,

A*^2Matthew Houck

Assistant Attorney General
REVIEWED AND APPROVED BY:

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Robert D. Cook
Solicitor General

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