Depending on one’s point of view, pawn shops, payday lenders and auto title financers — often one and the same — are lifelines to under-served communities where residents can’t secure regular bank loans or are predatory lenders preying on the disadvantaged with exorbitant interest rates.
Regardless of which side you come down on, there is a public policy question as to whether consumers should be protected by further government regulation of the $4 billion industry in Texas or, as many would argue, that free enterprise and consumer choice should be allowed to determine how the businesses are run.
The Star-Telegram Editorial Board is on record saying there ought to be more regulation in Texas, but the question has become which governmental entity should have that responsibility.
Part of the problem for consumers is that payday loans can carry almost 400 percent annual interest rates, and often the borrower is trapped in a cycle of debt with unlimited rollover of the loans, extending the terms and increasing the payback costs.
In 2012, Texans spent $1.2 billion in payday and auto-title fees, according to the online Texas Tribune. Borrowers had more than 37,000 vehicles repossessed by lenders that year.
The Legislature in 2011 passed a few mild reforms, basically making sure that lenders make costs clear to borrowers in plain-language warnings and requiring new reports to the state Office of Consumer Credit Commissioner. Last year lawmakers failed in an attempt to limit the amount of fees paid and the number of renewals.
Because of the Legislature’s inaction, some of the state’s largest cities (Houston, Dallas, San Antonio and El Paso) have passed ordinances to regulate the industry by putting restrictions on loan fees and capping the number of renewals.
Some have suggested that Fort Worth, home to one of the largest pawn shop/payday lending companies in the country — Cash America International — should join that list.
That would be a mistake, as cities typically lack the capability to enforce regulatory control over the industry.
For the sake of uniformity, and for adequate enforcement power, this issue should be decided at the state level. It ought to be on the agenda for next year’s legislative session, and lawmakers should adopt sensible statewide controls.