State Sen. John Hawkins, R-Spartanburg, said the industry is too profitable and powerful to accept regulation.
"I've come to realize they are similar to video poker in that regard," Mr. Hawkins said. "And they've used every trick in the book to fight real regulations."
A spokesman for industry leader Advance America Cash Advance Centers, based in Spartanburg, said Mr. Hawkins' dual roles in the Statehouse and in the lawsuit present an "interesting dilemma."
"It puts our company in an awkward position, and it puts the people of South Carolina in an awkward position," said Jamie Fulmer, the director of investor relations for Advance America.
Mr. Hawkins said there is no conflict between his duties as a lawmaker and his job representing his client.
"I'm not going to set aside my Senate role just because I'm involved in a lawsuit brought by people who have been harmed by these companies," Mr. Hawkins said. "I'm comfortable with my actions."
The industry has increasingly come under attack for what some say are excessive charges. The short-term loans charge fees of about $15 for every $100 borrowed. That can add up to an annualized percentage rate of nearly 400 percent for a two-week loan.
Customers typically are low-income, and advocates for the poor say the lenders create a cycle of borrowing that can sink someone living from paycheck to paycheck.
Supporters of the industry say it gives people access to emergency money when they have no other resources. They point to fees banks charge for bounced checks -- sometimes more than $30 regardless of the check amount -- that if annualized would equal even higher interest rates.
Some states have passed interest rate caps on the loans. When Oregon capped interest at 36 percent a year, Advance America stopped doing business there. Other states, including neighboring North Carolina, have banned the industry altogether.
South Carolina Sen. Robert Ford, D-Charleston, introduced a bill last session to ban payday loans in the state, but Mr. Hawkins pushed a compromise effort that instead put several restrictions on the businesses aimed at preventing customers from taking out multiple loans or taking out new loans to pay off old ones.