The chairwoman of the House Pensions, Investments and Financial Services Committee says she is entering the legislative dispute over payday lenders in an effort to seek a middle ground that will preserve the industry while driving out "bad actors" who prey on consumers.
Rep. Vicki Truitt, R-Keller, has introduced a package of legislation that will put payday and car title lenders under the authority of the state's Office of Consumer Credit Commissioner. She said she is also arranging to negotiate with representatives of industry and consumer advocates in an attempt to get past a perennial stalemate that has blocked compromise efforts in previous legislative sessions.
"Both industry and consumer advocates have killed bills in the past related to this issue -- bills that might have made improvements," Truitt told the Star-Telegram. "If we don't find middle ground both can accept, we will have the same result."
Sens. Wendy Davis, D-Fort Worth, and Royce West, D-Dallas, have introduced bills to close what they say is a loophole that allows payday lenders and car title lenders to operate outside the regulatory restraints that govern other lenders. Storefront lenders arrange short-term loans at combined interest rates and fees that Davis and others say often exceed annual rates of 500 percent.
Consumers who testified at a Feb. 22 hearing before the Senate Business and Commerce Committee said the escalating cycle of fees and interest drove them deeper into debt. Industry officials told senators they would be willing to accept "reasonable regulation" but said the legislation, as currently written, would impose price controls and severe new restrictions that would drive them from the state.
Davis' bill, which targets payday loans, car title loans and tax refund anticipation loans, has the backing of a coalition that includes AARP, the Christian Life Commission of the Baptist General Convention of Texas and Catholic Charities Diocese of Fort Worth. The Consumer Service Alliance of Texas, which represents lenders and includes Fort Worth-based Cash America International, is opposing the bill. Cash America operates more than 260 pawnshops in Texas.
Truitt said that demand for the short-term loans "won't go away" if current lenders leave the state and warned that organized crime and other "bad actors" could step in to fill the vacuum.
"Regulating too heavily will put them out of business, costing thousands of jobs and leaving an undesirable vacuum in the market," Truitt said. "That’s unacceptable.
"Leaving them unregulated will expose too many citizens to rogue actors in the industry," she said. "That's also unacceptable."
One of Truitt's three bills would require the lenders to register with the Consumer Credit Commissioner to conduct business in Texas. The commissioner would be empowered to deny an application to lenders with a criminal record or whose license has been revoked in other states.
Credit service organizations would also be required to file annual reports of their activities with the commissioner.
Truitt said that placing payday and title lenders under the supervision of the Office of Consumer Credit Commissioner would enable regulating officials to identify and punish unethical lenders. Her other goals, she said, would be to "impede the cycle of debt that causes so much damage to people’s lives" and to "improve the financial literacy and decision-making of consumers."
Truitt, whose committee oversees lending practices, said she felt it was necessary to take an active role to try to forge a breakthrough in what she called a "perennial issue" in the Legislature.
"No one will get everything they want," she said. "Everyone will get some of what they want. We can and will get the rogue actors out without harming the industry."
Truitt’s bills on payday and car title lending are HB2592, HB2593 and HB2594.