The state Senate passed two bills Monday evening meant to crack down on payday and car title loan providers. Critics of those who offer these services call them "predatory lenders" because they tend to attract poorer people who often end up owing more than they initially borrowed in fees and interest payments. While some call the legislation a good first step, others say the bills actually "harm" consumers.
HB 2592 requires credit service organizations to provide consumers with "adequate information" about the costs they face before they sign any agreements. It does so by strengthening notice and disclosure requirements for lenders. The companion bill, HB 2594, requires payday and car title lenders specifically to be licensed and regulated by the state. In order to obtain a license, those companies will have to pay minor fees and issue bonds from $10,000 for the first license up to a maximum of $2.5 million for additional licenses. The Finance Commission of Texas is charged with overseeing the new rules.
Sen. Wendy Davis, D-Fort Worth, refused to vote on the bill, instead voting "present." During debate, Davis spoke out passionately against the payday loan industry and said efforts to regulate it have gone nowhere. She introduced several amendments to strengthen the legislation but pulled them "out of respect" for the bill's sponsor, Sen. John Carona, R-Dallas. Carona said the bill had received widespread support from the players affected by the legislation and that any changes would destroy it.
"We haven't done anything in the state of Texas to help the people who are at the vulnerable end of this predatory practice," she said. She also criticized the payday loan lobby for influencing lawmakers.
Davis said the bill does not go far enough because it does not cap interest rates, allow partial re-payment options or limit the number of times payday lenders can "roll over" unpaid loans. She pointed out a loophole in the state's finance code that has allowed the lenders to operate in the same category as those organizations that are supposed to get people out of debt. Instead, she said, their customers end up in "a cycle of debt" and the number of payday lending centers around the state has increased significantly. She also railed against amendments passed in committee that will allow payday lenders to use "installment loans" and charge interest rates in excess of 600 percent.
The legislation now heads back to the House for another review. If that chamber approves it, the next step will be to the governor for his signature.
(UPDATED May 24, 2011) AARP Texas released the following statement on Tuesday from President Ollie Besteiro:
“AARP is pleased that the Texas Senate voted to approve two bills that take steps toward providing meaningful licensing and oversight and improving fee disclosures in the payday lending industry in Texas. It’s the first time in a decade that both chambers have passed significant payday lending reform.
“Texans clearly want relief from abusive interest rates and practices. A recent AARP survey found that more than three-fourths of Texans oppose payday lenders and auto-title lenders charging up to 500% APR interest and almost two-thirds support the licensing and regulation of these lenders.
“While we are disappointed that the bills fail to address the vicious cycle of debt that victimizes so many Texans, their passage is a hopeful sign that lawmakers are starting to listen to their constituents’ call for fair and responsible lending in Texas.”