Outlook bleak for legislation to tighten rules on payday lending

Posted Thursday, May. 09, 2013  comments  Print Reprints

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The House architect of legislation to regulate the payday and auto title loan industry on Wednesday acknowledged a bleak outlook for the measure and vowed to push for tough local measures if a statewide regulatory law doesn’t clear the Legislature.

Rep. Michael “Mike” Villarreal, D-San Antonio, chairman of the House Investments and Financial Committee, told a press conference that there is only one assured vote for the bill in his committee — his own.

Of the six other committee members, Villarreal said, there are “three solid no’s” and “people in the middle” whom the committee chairman is trying to convince to support the bill.

With the Legislature’s May 27 adjournment fast approaching, Villarreal has only about a week and half to get the bill out of his committee for a vote on House floor.

Moreover, he would presumably be forced to strengthen his bill through amendments or in conference committee to make it palatable to the Senate, which passed a toughened payday lending bill on April 22.

Sens. Wendy Davis, D-Fort Worth, and Rodney Ellis, D-Houston, called Villarreal’s bill unacceptable in its present form, though they acknowledged that the House chairman has had to make key concessions to try to win support within his committee.

“I don’t want to just pass a bill,” Villarreal said at a Capitol press conference. “I’m not interested in putting my name on a paper tiger. If we cannot pass a meaningful bill at the state level, then the cities need to be empowered and encouraged.”

Dallas, Austin, San Antonio and El Paso have already enacted payday loan measures, and Houston is expected to join the list.

If proposed state regulation dies in the Legislature, Villarreal said he plans to travel from “city to city” over the next two years campaigning for a network of local ordinances to strengthen regulations on payday and auto title lenders.

Davis, who has made payday lending regulation one of her key legislative priorities, said she is prepared to support Villarreal’s efforts by pushing for a payday lending ordinance in Fort Worth.

“Fort Worth doesn’t have one and I am certainly going to work to see that happen,” she said. “I think Chairman Villarreal is exactly right. When local eyes are watching the way we’re regulating this industry, there tends to be a better result.”

Added Ellis: “I can assure you Houston is going to have a very strong ordinance.”

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 but have said they welcome reasonable legislation to provide a “safety net” for those who chronically fall behind in repaying their loans.

Before enacting their version of the legislation, senators added a series of amendments that strengthened the original committee-passed bill, including caps on interest and fees and a database to monitor lending activity. Senators also removed a feature that would have pre-empted local ordinances for two years.

By contrast, the Villarreal bill does not include the database, nor does it impose a cap on fees and interest. Instead, the bill would place a limit on total monthly payments a consumer could take on, based on the borrower’s monthly income.

Like the Senate bill, it would require lenders to only make the types loans that are specified in the legislation. It would also address what has been described as the “cycle of debt” by limiting the number of loan rollovers, a process which leads to additional fees.

Villarreal’s bill would also pre-empt city ordinances for a six-year period, a likely deal-breaker for senators, who rejected the pre-emption concept.

‘A real challenge’

Davis, who wrote the data-base amendment in the Senate, said she recognized that Villarreal “has a real challenge on his hands” trying to get it his bill out of committee.

But she said she is “very concerned” that his bill is “significantly weakened from the one we passed out of the Senate.”

Villarreal called his measure a “meaningful and balanced bill” that would save consumers a minimum of $130 million a year and possibly much more.

“It’s time for this Legislature to protect consumers from this cycle of debt,” he said. “We should not put it off any longer.”

Villarreal, who faces a May 18 deadline to get his measure out of committee, said he remains hopeful that he can still persuade enough committee members to come over to his side. “We still have time,” he said.

Dave Montgomery is the Star-Telegram’s Austin bureau chief, 512-739-4471 Twitter: @daveymontgomery

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