The fight for payday loans, from the Capitol to the countryside


The payday loan controversy that has exploded in the gubernatorial race in recent weeks highlights the state’s lack of regulation and the challenge lawmakers have faced with an issue as controversial on Capitol Hill as it is in the countryside electoral.

Last year, a major legislative effort to impose state regulations on lenders failed, and since then Houston has joined with Austin, Dallas, El Paso and San Antonio in passing a city ordinance to limit lending. Now, the issue of so-called predatory loans is erupting in the gubernatorial race amid calls to quit the government. Rick perryis appointed to head the board of directors of the agency responsible for regulating the credit industry and educating consumers, which is also an executive for one of the lenders.

In Texas, where payday lending and automatic securities lending is a $ 4 billion per year industry with some 3,500 companies, there are no limits on the fees or size of loans. Supporters of the industry claim that lenders provide a necessary service to consumers who have few options for short-term loans. Critics say companies are preying on struggling Texans by charging high fees and trapping borrowers in a cycle of debt.

“You have these people doing things in Texas that they wouldn’t dream of doing anywhere else in the country,” State Sen said. Rodney Ellis, D-Houston. “It really is the wild and wild west.”

Texans get bigger loans and pay higher fees than consumers across the country, according to the Center for Public Policy Priorities, a liberal think tank that pushed for state reforms. Texans spent $ 1.2 billion on roadside assistance and auto title fees in 2012, and 35,000 state cars were seized.

Texas was one of 27 states that had payday loan regulations that the Pew Charitable Trusts called permissive in 2013. Fifteen states did not have payday loan storefronts, and nine more had stores but also had strict requirements.

Some argue, however, that less regulation in Texas is better. Bill Peacock, vice president of research at the Texas Public Policy Foundation, a conservative think tank, said Texas has “one of the most competitive payday industries in the country.”

“So-called consumer advocates often complain that consumers are getting a bad deal, but consumers are voluntarily entering into these deals because they need access to capital,” said Peacock, who opposes the city ordinances. and state legislation which increases regulation of the industry.

Payday loans became an issue in the race for governor when the main Democratic candidate, State Sen. Wendy davis, D-Fort Worth, called for the resignation of William White, chairdresser Texas Finance Commission, Following comments he made to El Paso schedules in December. White, vice president of payday lender Cash America, told the newspaper that no one is forcing anyone to take out loans and that “people are responsible for their decisions.” The campaign of Republican leader for governor Greg Abbott pointed out that Davis voted to confirm White in 2011.

Davis also drew attention to a 2006 letter written by Abbott, the state’s attorney general, that said she said she created a loophole for payday lenders when he said that there is no limit to the fees that can be charged by lenders operating as credit service agencies. Abbott’s campaign said Davis’ claim was false.

In the Senate, Davis called for more state regulation of payday loans. Abbott’s campaign spokesman Matt Hirsch said Abbott would be “open to all reforms that make Texas better.”

During the 2013 legislative session, lenders joined with consumer advocates to work with lawmakers to develop legislation to create uniform regulations for payday lenders across the state. But there has been sharp disagreement over the details of those regulations, and in the Senate, Davis and others have added amendments to the bill that its mover, Sen. Jean Carona, R-Dallas, said he left little hope of passing. Since its failure, Houston, the state’s largest city, has become the latest to adopt its own rules for payday lenders.

Houston’s ordinance, similar to those passed in other cities in Texas, limits payday loans to 20% of the borrower’s gross monthly income. It limits loans to a maximum of four installments or three renewals, and requires that the proceeds of each installment or renewal reduce the loan principal by 25%.

Ellis said the passage of the ordinance was a “big blow” against industry opposition. State Senator Sylvie Garcia, D-Houston, said it would protect families and foreshadow future state-level action.

“For too long, hardworking Houston families have fallen prey to payday lenders as they try to survive month to month,” Garcia said in a statement when the ordinance was passed in December with the support of a coalition comprising religious leaders and the AARP. .

But the orders in Houston and other cities could be unenforceable or overturned by the courts, said Carona, chair of the Senate Business and Commerce Committee.

Carona said the legislation he proposed last year would have saved Texan consumers millions of dollars in fees, shielding them “from the debt cycle while preserving their access to credit and basic fundamentals. that support our market economy “. The proposal would have tied the maximum loan allowed a lender could offer to a borrower’s monthly income, limited the number of financial products lenders could offer, and capped the number of times an indebted borrower could refinance a loan.

After state legislation failed, which would have preceded local ordinances, Houston Mayor Annise Parker came forward with her proposal.

Rob Norcross, spokesperson for the Consumer Service Alliance of Texas, said the trade association or its members “reluctantly” expected to sue Houston and El Paso for the city ordinances, as they did in Austin, Dallas, San Antonio and Denton.

The Dallas ordinance isn’t working, Norcross said. More than 75 payday loan stores have closed in the past two years, resulting in the loss of 200 jobs, he said. The ordinance requires consumers to travel to a nearby town for loans or bad checks because they can’t get the type of loan they need in Dallas, he said.

“Unfortunately, we are playing political games with people’s wallets,” Norcross said. “If what we’ve seen in Dallas over the past two years is statewide, it would be a significant issue for the viability of the industry but, more importantly, a significant issue for accessing credit. for Texas borrowers who in many cases have no other location.

Norcross said much of the criticism of the industry has come from people who don’t understand the numbers, like how annual percentage rates work for small, short-term loans. A 400% interest rate may seem high to people until they learn that it could mean someone borrowed $ 100 and had to pay back $ 117, he said.

While the alliance is concerned about municipal ordinances, it has always been in favor of a statewide regulatory framework on city ordinances, said Norcross.

“No, they don’t want statewide regulation,” Ellis said of the industry. “What they want is a statewide map to continue to abuse Texas families.”

Although the legislation was not passed in 2013, lawmakers passed measures in 2011 requiring payday lenders and auto title lenders to be licensed by the state and to publish a schedule of fees in a visible place. Consumer advocates have said the laws do not go far enough.

Don Baylor Jr., senior policy analyst at the Center for Public Policy Priorities, said he was pessimistic about the chances of the legislature passing state-wide reforms in 2015, in part because cities with ordinances do not want to lose local control.

Carona said in an email that he would continue to work on reform, but it was an uphill battle.

“Given the political environment on Capitol Hill, I am deeply concerned that we will have even more difficulty passing significant reforms in the next legislative session,” Carona wrote.

Additional reporting by Jay Root.


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