Texas Senate passes tough payday lending bill

Posted Monday, Apr. 22, 2013  comments  Print Reprints

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AUSTIN -- The state Senate voted 24-6 on Monday to approve tougher-than-expected regulations on payday lenders with provisions that even supporters acknowledged will attract an industry assault when the bill reaches the House.

Sen. Wendy Davis of Fort Worth, who has made the issue one of her key priorities since entering the Legislature in 2009, joined with other Democrats in pushing a series of amendments that upset a carefully engineered compromise designed to balance demands from the powerful payday lending industry and consumer groups seeking tougher regulations.

At the end of sometime contentious debate, Sen. John Carona, R-Dallas, the bill's principal architect, acknowledged being unable to fend off changes that substantially altered the bill that came to the Senate floor after weeks of intense negotiations.

"I just want to home and feed my cats," he joked near the end of debate.

Nevertheless, Carona, who chairs the Senate Business and Commerce Committee, called the final Senate product "a bill that we can be proud of," telling senators they had enhanced the measure in "ways I could only dream of."

The first major change after Sen. John Whitmire, D-Houston, angrily challenged a provision in the compromise bill that have would pre-empted payday lending ordinances now in force in several cities with the statewide statute.

Although the pre-emption feature would have been lifted in two years, Whitmire said it would allow the payday lending industry to "rape and rob" the people of Houston, which is considering enacting an ordinance.

Senators then approved a Whitmire amendment allowing cities o establish payday lending ordinances after voting 21-9 against Carona's attempt to kill the amendment.

They then went on to accept other Democratic amendments, including limits on fees and interest rates. Senators also approved a package of compromise amendments by Carona that strengthened his committee-passed bill, including a civil penalty against payday or auto title lenders who try to offer products not authorized in the proposed law.

Twelve Republicans, including Carona, joined the chamber's 12 Democrats on final passage. Members of the Tarrant County delegation supporting the bill were Davis and Republicans Kelly Hancock of North Richland Hills and Jane Nelson of Flower Mound. Republican Brian Birdwell of Granbury voted against it.

Davis said the outcome partly vindicated her previous efforts to crack on payday lending abuses, adding that some members who previously opposed toughened regulations may have felt compelled to vote in favor of the bill rather than risk the anger of consumers back home.

Challenges ahead

But she said that lending industry, which has spent millions of dollars in political contributions and lobbying expenses on the issue, will likely ratchet up the pressure as the debate shifts to the House.

"They're going over to the House and try to kill it," she said. Davis told senators there are 3,500 payday and auto title storefronts in Texas, more than the number of "Whataburgers and McDonalds combined."

Critics have accused lenders of subjecting consumers to steep interest and fees forcing them into continued debt. Industry officials say lenders are performing a valuable service to borrowers in need of cash, including the elderly and the working poor, but have said they welcome reasonable legislation to provide a "safety net" for those who chronically fall behind in repaying their loans.

Carona, chairman of the Senate Business and Commerce Committee, has said his bill is designed to break the cycle of debt for consumers who are forced to pay steep fees of or recurring loans. Under Carona's bill, multiple-payment payday loans and auto title loan may not extend beyond 180 days and cannot be refinanced.

It would require a limited number of extensions of credit and a "cooling off" period in which the borrower has to be without debt to any of the lenders.

"The greatest concern that we have in this legislation ... must be for the consumers of these products," said Davis. "And we've heard many, many stories about lives that have been ruined as a consequence of this state's failure - and I put the blame on the state, I don't put it on the lenders even - to appropriately regulate this industry so the consumers are treated fairly."

The 2011 Legislature passed two of three bills by then-Rep. Vicki Truitt, R-Keller, that imposed registration and reporting requirements on lenders but did not address the "cycle of debt" issue that Carona says needs to be an essential element of payday lending legislation.

Truitt, former chairwoman of the House Pensions, Investments and Financial Services Committee, was defeated in the Republican primary last year is now a lobbyist for ACE Cash Express, a payday lending company based in Irving.

Carona told senators at the outset of debate that he had "tried to find a balance" in forging a bill that would have a chance to pass the Legislature. He warned that lawmakers could reach a "tilting point" and make the bill "so tough" that it would be killed.

Dave Montgomery is the Star-Telegram's Austin Bureau chief, 512-739-4471

Twitter: @davveymontgomery

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