Payday Lending Reform Bill Stripped Of Consumer Protections

/, Savings & Asset Building, Texas Legislature/Payday Lending Reform Bill Stripped Of Consumer Protections

Last week, meaningful payday and auto title reform turned to mush as industry interests reneged and rewrote the legislation to strip out many of the basic protections included in the original SB 1247.   This bill, which would preempt local action to control these unaffordable transactions, is stuck in the Senate Business & Commerce Committee after the industry scored a 9-0 shutout vote by weakening the bill on at least nine specific provisions.  As a result, the bill currently has only industry support but no backing from consumer groups.  As Sen. John Carona mentioned in last week’s hearing, the industry “has amassed enormous political support in the Capitol . . .even though they take enormous advantage of . . . [Texas] consumers.”

The most important change from the original bill relates directly to our Better Texas Family Budgets (www.familybudgets.org), which shows what it really takes for families to make ends meet in Texas.   The original bill would have allowed a multi-payment payday loan—say, a six-month loan with a total of 12 payments at 650 percent APR—to include total monthly payments of no more than 20 percent of a borrower’s gross monthly income.  Still a lot, but typically less than a family’s housing costs.  Under the committee substitute version, that maximum payment soared up to 40 percent of a borrower’s gross monthly income.  With this absurd standard, monthly loan payments could exceed their total monthly expenses for housing, transportation, and one week’s groceries.    For a teacher earning just over $40,000 in Longview, her monthly payments could be as high as $1,500 per month, and for six straight months—the ultimate family budget buster.

We believe that Texas can do better by making these loans more affordable and maintaining credit access.   High cost payday and auto title lending drains the financial resources from communities and working families.  Last year alone, the industry, or credit access businesses (CABs), repossessed over 35,000 vehicles and milked over $1 billion in fees and interest from seniors, military, and hard-working Texans.   As we wrote in the Hidden Costs of Payday Lending, local communities, bearing the brunt of high cost lending, were far ahead of the Texas Legislature in taking meaningful action to tackle the problem.

Just last week, the City of Denton joined El Paso, San Antonio, Austin, and Dallas in passing a municipal ordinance to increase borrower and lender success in the marketplace by limiting payments to a reasonable share of a borrower’s gross monthly income, among other guidelines.  Several others, including Amarillo recently, have passed resolutions calling on the Legislature to enact meaningful reform.

During our testimony last week before the Senate Business & Commerce committee, we compared the industry-favored loan guidelines to putting a 75 mph speed limit on a residential road.  While it is a limit, no one can argue this will make anyone safer on that street.  With the current version, most Texas consumers won’t be better off.  They would continue to get run over by CABs.

The following changes need to be made to the bill in order to stop the cycle of debt and increase consumer success:

  • Define refinance as a loan within 7 days of the previous loan transaction.
  • Include fees, principal and interest in the loan amount limitations for single payment loans.
  • Restrict the total monthly payment amount for all multi-payment loans to 10% of the borrower’s gross monthly income for the lower income threshold.
  • Limit multiple payment loans to 180 days with no refinances

If your community and clients are negatively impacted by payday and auto title loans, then call your Senators and tell them to only support meaningful reform that includes these four provisions.

At the Center for Public Policy Priorities, we believe in a Texas that offers everyone the chance to compete and succeed in life. We envision a Texas where everyone is healthy, well-educated, and financially secure. We want the best Texas - a proud state that sets the bar nationally by expanding opportunity for all. CPPP is an independent public policy organization that uses data and analysis to advocate for solutions that enable Texans of all backgrounds to reach their full potential. We dare Texas to be the best state for hard-working people and their families.

4 Comments

  • Are you kidding us? “Last year alone, the industry, or credit access businesses (CABs), repossessed over 35,000 vehicles and milked over $1 billion in fees and interest from seniors, military, and hard-working Texans.”

    35,000 vehicles repossesed? Where does this number come from? Certainly not The OCCC.

    The military? Since Oct. 1, 2007 a federal law has capped lending to military personnel at a maximum of 36% APR as defined by the Secretary of Defense. The result? Members of the military have to beg and borrow from friends and family.

    What’s a consumer supposed to do at the end of 180 days? To pay-off the 1st lender, they’ll simply whip-out their phone and get a loan from a lender lacking a store-front in Texas. That’s a lender not employing Texans, paying taxes in Texas, paying rent on a commercial building in Texas…

    Local ordinances against payday loan and car title companies? Get real, Don! Are you going to set-up road blocks at the county line? Check for loan documents? Payday loan consumers in Georgia and North Carolina – where store-front lenders are not allowed to exist – have cars they use to drive across state lines to get loans. Lenders in neighboring states advertise to them on the radio; can you imagine?

    I agree with Don! Call your Senators. Call your Senators in order to continue to be treated as an adult. Call your Senator to help them understand what life will be like having fewer financial choices available.

    Oh, and count your credit cards. Don will soon be. Rumor is he thinks you should only be allowed a single credit card as well.

    Jer Trihouse (Yep, I’m very biased :o)

    Jer Trihouse 26.03.2013
    • Jer,

      Thanks for participating in a civil debate about an important public policy issue for the state of Texas. First, we recognize the need for short-term credit, and none of these reforms would put payday or auto title lenders out of business. Second, cities have passed these ordinances because more and more of their residents are being negatively affected by these products, increasing the burden on social service agencies across the state. Lastly, no, the over 35,000 vehicles repossessed is not some estimate that we derived. In fact, it comes directly from OCCC quarterly and annual reports that were mandated by the 82nd Legislature. Prior to 2012, we had no idea how many vehicles were being repossessed solely due to auto title loans. Now we do. OCCC reported 35,069 vehicles repossessed in 2012. You are free to check out their website (http://www.occc.state.tx.us/pages/publications/index.html) to verify these numbers.

      Don 27.03.2013
  • Thank you for putting out such a strong statement that sheds light on the direction of legislation on payday lending during the current session. The Family Budget Estimator on your web-site and your new documentary demonstrate that half of our working families do not earn enough to have a significant savings account for emergencies like major car repairs, hospitalizations, or lay-offs. Unfortunately, Texas families need the kind of emergency access to cash they can only get from payday and title loan lenders. We must ensure that these services are provided in a way that is fair and allows for the economic survival of the family. We need this legislation to be strong and reasonable. I know I and my friends will be working to find alternative programs and urge our legislators to put forward stronger safeguards for Texas families. Keep up the good work!

    Flora Alexandra Brewer 26.03.2013
  • I tried to refinance (our payment $1344 at 5.75% and 830 credit rating) but they said because we are retired and don’t have the required loan to debt ratio that they won’t lower my payment to the going 3% approximately.
    We also borrowed equity in 1992 so they claim the State won’t allow a refinance.
    Is any of this true? Our house is valued at 4 times the loan balance.

    Janice Feldman 26.03.2013

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