Restraints on Texas payday loans are worth another try

Posted Thursday, May. 09, 2013  comments  Print Reprints

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Two years ago, the Legislature brought more transparency to the destructively high cost of consumer payday and deposit advance loans.

Any interest in genuine reform appears to have ended there.

The Texas Senate passed a remarkably responsive bill regulating the exorbitant interest rates and fees that can be collected by Texas payday lenders. A weaker version currently before a Texas House committee at least limits how many times consumers can refinance loans, incurring more fees each time that only extend the term and increase the ultimate cost.

The House bill’s author, state Rep. Mike Villarreal, D-San Antonio, said Wednesday the bill does not have even one certain vote, other than his own, in the Committee on Investments and Financial Services, which he chairs.

For the Legislature, it marks a second failure to bring even mild regulation to an industry under increasing national scrutiny for loans charging annual interest rates as high as 391 percent, according to a study by the federal Consumer Financial Protection Bureau.

According to a survey by the Pew Charitable Trust, 8 percent of Texans rely on consumer payday or deposit advance loans, which can be 20 times more expensive than bank loans and three to four times more costly than pawn loans.

San Antonio, Dallas, Austin and El Paso have passed local laws regulating the industry, and Houston has one on the drawing board.

Critics of payday lending and advocates for relief agencies say the expensive and attractive rollover loans draw borrowers into a cycle of debt. They say Texas and cities are financially better off when borrowers spend less on loan fees and interest and in turn have more to spend on consumer goods that generate local jobs and economic development.

Supporters of payday and deposit advance lenders view the loans as a matter of free enterprise and consumer choice and argue that the loans are lessons in self-reliance and personal responsibility.

In Villarreal’s committee hearing, one Republican said lawmakers should not “assign a morality to an issue of business.” Another said payday loans allow Texans to “exercise their freedom.”

The 2011 Legislature made the costs clear to borrowers, requiring plain-language warnings and new reports to the state Office of Consumer Credit Commissioner.

But that office’s main purpose is to gather data and register lenders, not to regulate them.

A coalition of church groups, Texas Faith for Fair Lending, has united the Texas Catholic Conference and the Texas Baptists’ Christian Life Commission to call for limits on loan eligibility, fees and interest.

The Senate reforms, in Senate Bill 1247 by state Sen. John Carona, R-Dallas, passed by a 24-6 vote that included local state Sens. Wendy Davis, D-Fort Worth; Kelly Hancock, R-North Richland Hills; and Jane Nelson, R-Flower Mound, voting for it. Sen. Brian Birdwell, R-Granbury, was opposed.

Davis has led Democratic efforts to reform payday lending. Carona convinced a majority of Republicans to support a bill that provided some reforms acceptable to the industry while also preventing multiple-payment payday loans of more than 180 days and the equally attractive rollover auto title loans.

Villarreal’s House version has added one element senators rejected: a six-year moratorium on city ordinances regulating payday lenders.

Senators debated such a moratorium and adamantly rejected it, led by urban lawmakers from cities with local ordinances.

To survive, the bill must pass Villarreal’s House committee by May 18. If it doesn’t fail there, the Senate lies in wait.

You might say the task will roll over to the next Legislature.

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