The 2013 regular legislative session ended without the passage of any payday and auto title lending reform. As a result, the Legislature missed a critical opportunity to protect Texas consumers from excessive fees and unnecessary auto repossessions by failing to pass SB 1247, the omnibus reform bill filed by Sen. John Carona. This bill included the ability to repay standards, loan limits, and refinance limitations, among numerous other provisions. According to the Office of Consumer Credit Commissioner (OCCC), the refinance limitations alone in SB 1247 would have produced annual savings more than $130 million for more than 300,000 Texas consumers.
Unlike other consumer loan products offered in Texas, the Finance Code contains no payday loan regulation relating to loan fees or effective annual interest rates, loan amounts, maximum number of refinances per loan, loan terms[i], ability to repay or underwriting and type of product. At least for payday loans, the absence of any statewide regulation or consumer protection makes Texas an outlier compared to nearly every state that permits or authorizes payday lending. Only five other states do not cap the amount of fees payday lenders can charge (Delaware, Idaho, Nevada, Ohio and South Dakota).[ii] Even among these states however, Delaware and Nevada have limits on loan terms and all five states limit loan amounts. [iii]
A recent analysis of payday lending conducted by the Consumer Financial Protection Bureau (CFPB), which covers a majority of the U.S. storefront payday loan transactions over a 12-month period, found that 68 percent of payday loan consumers had annual incomes at or below $30,000, and 43 percent had annual incomes at or below $20,000. The median annual income of payday loan consumers was about $22,500; for borrowers making under $20,000, the most common income sources were “public assistance/benefits” and “retirement”.
The CFPB analysis also found that the average payday loan amount nationwide was $392 in 2012. Nationwide data on payday lending appear to be much better than comparable data from unregulated Texas payday lenders, which reveal that Texas borrowers pay much higher fees and loan amounts. Based on 2012 data from OCCC, the average single payment payday loan in Texas was $472.
SB 1247 also included limits on refinances for each loan product, generating a pathway out of debt for consumers who get into trouble with payday or auto title loans. For 2012, single payment payday loans alone comprised about 75 percent of all payday loans, while single payment auto title loans accounted for 83% of all auto title loans.[iv] The original loan amounts of single payment payday loans surpassed $1 billion, while loan refinancing nearly hit $2.1 billion. Over 70 percent of single payment payday loan consumers that refinanced their loan did so multiple times. As shown by the CFPB report, repeat borrowing and renewals represent the lion’s share of all loan volume. On-time repayment is the exception, with three refinances for every loan paid in full on the original due date.
Although SB 1247 passed in the Senate, the House Investments and Financial Services Committee failed to even vote on SB 1247 so the full House could consider and debate the bill. As the session ended with no statewide regulation of these high-cost loan products, Texas consumers can now only lean on uneven and uncertain city ordinances and look forward to federal (CFPB) rules to govern payday and auto title lending in Texas.
[i] Although Section 393 of the Finance Code contains a 180-day limitation, the section refers to “performing the [credit extension] services” not the actual extension of credit.
[ii] National Conference of State Legislatures. “Payday Lending Statutes.” http://www.ncsl.org/issues-research/banking/payday-lending-state-statutes.aspx.
Pew Charitable Trusts. “State Payday Loan Regulation and Usage Rates.” http://www.pewstates.org/research/data-visualizations/state-payday-loan-regulation-and-usage-rates-85899405695.
[iv] “Consumer Impact Analysis.” Office of the Consumer Credit Commissioner.