Texas is arguably ground zero in the battle to rein in excessive fees and deceptive practices from payday and auto title lenders. Last week, the Office of Consumer Credit Commissioner (OCCC), the state entity that supervises credit access businesses (CABs)—also known as payday and auto title lenders—issued stern warnings to companies that appear to be skirting local and state laws through deceptive business practices. The Credit Services Organization (CSO) Bulletin describes a novel scheme that seeks to preclude payday or auto title transactions from actually counting as such a transaction, clearly evading the intent of laws passed by the 82nd Legislature. By not requiring consumers to present a post-dated check or motor vehicle title, this practice attempts to place these transactions outside of OCCC’s regulatory authority. (Recently, the Texas Observer wrote about this exact scheme happening in Austin) In response, OCCC “strongly urges any CSO currently engaged in this practice to consider the legislative and legal consequences.”
Since the end of last session, municipalities (Dallas, Austin, San Antonio) have passed transactional limits around the number of refinances, loan amounts, and other safeguards. Well, payday and auto title lenders want to evade those local ordinances as well. The “bait-and-switch” works this way. A Dallas CAB storefront makes a 30-day auto title loan to a consumer. Upon the end of the term, the consumer is told to take out a new loan at a branch location outside Dallas city limits or face auto repossession. In the CAB Bulletin (City Ordinances), OCCC argues this “deceptive practice . . . appears calculated to bring the consumer into the store with the promise of one product, but later effectively requires the consumer to go to another location to purchase another product.” Again, OCCC urges these CABs to “consider the legislative and legal consequences.”
As we go into session, how will the Legislature respond to some industry players intent on disregarding state and local laws? Will there be legislative consequences? Given their free reign to charge as much as they want as many times as they want, payday and auto title lenders should face consequences in order to ensure consumer protection and fair play for working Texans.