Legislators this year will once again try to combat some short-term lending practices that critics say prey on poor Texans.
Credit access businesses, including payday lenders and auto-title loan businesses, have faced criticism for charging massive interest rates to customers seeking loans and no way to help pay them off. Last session, legislators passed a law that allows more oversight and tracking of these businesses, but a bill that would have addressed the so-called cycle of debt did not pass.
“They started putting a structure in place to get a handle on who these lenders are and how many loans they are making,” said Ann Baddour of the Texas Appleseed, a member of the Texas Fair Lending Alliance. “The big piece that was not addressed and yet was the main reason everyone came together was the cycle of debt — the really high fees charged for these loans and a loan structure that’s not designed to be paid back.”
Since 2011, four major Texas cities — Austin, Dallas, San Antonio and, earlier this month, El Paso — have passed municipal ordinances to crack down on the cycle of debt. Baddour said the association hopes legislators will pass a law to institute such measures statewide to eliminate confusion for customers and businesses and to protect customers in rural areas.
State Sen. John Carona, R-Dallas, is working with businesses and advocates to draft legislation to help fight predatory lending practices. Steven Polunsky, the finance committee's director of business and commerce, said the legislation passed last session has increased oversight of credit access businesses but didn’t go far enough.
“There are still problems and abuses out there within the industry where there are some new products being offered that are designed so they don’t fall under the existing regulatory scheme,” Polunsky said.
He said he expects the passage of "consensus legislation that will establish an appropriate level of regulation without strangulation."
Rob Norcroff, a spokesman for the Consumer Service Alliance of Texas, which represents more than 90 percent of short-term lending storefronts in Texas, said his organization agrees that statewide regulatory legislation is necessary. In October, the alliance released a set of "best practice" guidelines intended to eliminate the cycle of debt that all members are required to follow.
The alliance’s lawyers argue that city ordinances are unconstitutional because the authority to regulate credit businesses lies with the Legislature. The alliance has sued Dallas, Austin and San Antonio over their rules, but Norcroff said the ordinances offer a good model for the Legislature to examine when drafting a new law.
“[Legislators have] got the ordinances as one example, and our best practices are another example,” Norcroff said. “And there is all sorts of middle ground.”
State Rep. Joe Farias, D-San Antonio, has filed House Bill 420, which would require credit access businesses to provide literature in multiple languages, particularly Spanish, as determined by the state's Finance Commission. He said he has previously filed bills to help end predatory lending practices and would support similar bills this session.
“This matters in the community I represent,” Farias said of his bill. “There is a business right by my office. I see the clientele going in and out, and we realized we need to provide an opportunity for them to get materials in Spanish.”