Doctored Payday Lending Bill Passes Senate

Updated, April 22, 8 p.m.

The Texas Senate approved a bill to regulate short-term lenders on Monday night, a milestone some thought the chamber wouldn't reach after a personal and divisive floor fight on Thursday.

But with the measure's author, state Sen. John Carona, R-Dallas, calling the highly altered bill an "ugly baby," it remains to be seen whether the measure is viable enough to get through the House.

The bill passed with versions of the six amendments Carona brought with him to the floor last week, but seven other amendments got tacked onto the bill, including one from state Sen. Wendy Davis, D-Fort Worth, that would bring payday lenders back under the control of existing small-loan regulations. 

That provision is similar to one in a bill state Rep. Tom Craddick, R-Midland, introduced, which was lauded by consumer advocates but has long been seen as politically troublesome.

Another potential poison pill comes in the form of an amendment from state Sen. John Whitmire, D-Houston, that prevents state regulation of payday lenders from preempting local regulations. Previously, the bill established a statewide minimum level of regulation and preempted local ordinances regulating short-term lenders. 

The statewide regulations and preemption were welcomed by payday lenders, who were willing to negotiate certain reforms in return for the expectation that they would be operating under uniform rules. With that provision gone, it remains unclear whether the two sides can come together to reach an agreement. Carona acknowledged as much on the Senate floor.

“This has the effect, I think," he told Whitmire, "of perhaps not leaving us any hope of passage."

Whitmire, for his part, seemed to doubt that the amendments would survive the House, leaving it with no hope of passage later when it returns to the Senate.

"What are the odds," he asked, that "the House returns your bill with these amendments? This ain't my first rodeo."

As the amendments piled onto the bill, Carona began to treat them with a sense of resignation.

"I'll leave it to the will of the body," he said of the last amendment. "I just want to go home and feed my cat."

Original story: 

Payday lending legislation took a major hit Thursday as heated debate ended in the bill's author pulling the measure from the Senate floor.

Senate Bill 1247, by state Sen. John Carona, R-Dallas, would create a statewide regulatory framework for payday and auto-title lenders, financial institutions that offer short-term loans to low-income borrowers at high interest rates.

The bill, one of a number before the Legislature attempting to impose limitations on the financial products offered by short-term lenders, has long been seen as the most politically viable. But the bill's path to the Senate floor has been troubled, with consumer advocates and the powerful short-term-lending lobby at odds over provisions in the legislation.

During debate on the Senate floor on Thursday, Carona said his aim wasn't to shut the industry down, but to impose reasonable limitations.

"I’m a capitalist. We’re all capitalists on this floor," he said. But "at the end of the day, this bill has to be about helping consumers."

Carona, who said the bill had been "negotiated literally through the night," brought with him to the floor six amendments that were intended to address the concerns of some consumer advocates who said the bill didn't go far enough in limiting the abilities of short-term lenders.

Ultimately, the bill was pulled before debate on the amendments began, but Carona said they mostly contained ways to strengthen consumer protections, including limiting the types of loans that short-term lenders could offer, mandating that lenders accept partial payments, and limiting the maximum duration of multiple-payment loans — a major sticking point for consumer advocates.

"There are only two or three amendments that the industry really finds objectionable," he said, "and in that case, all we’re asking the chamber to do is do what’s right for consumers."

Early in the debate, state Sen. Kirk Watson, D-Austin, said many senators' support for the measure would depend on the inclusion of those six amendments in the final bill.

"I think that there will be an effort to stop 16 people from voting for any conference committee report that strips those out," he said, referring to the version of the bill that could emerge from a future House vote.

But some senators, who had previously expressed their intent to vote for the bill that emerged from committee, balked at the proposed changes. In an argument about process that turned personal, critics of the bill took issue with the way Carona brought his amendments to the floor.

Leading the criticism was state Sen. Troy Fraser, R-Horseshoe Bay, who charged that Carona hadn't given the chamber enough time to review the proposed changes. While calling payday lending reform a "difficult issue," he asked Carona if he had sent the amendments around 24 hours in advance. Carona's reply was sharp.

"No, sir," he said. "And, frankly, I haven’t seen you do that with your bills."

Fraser said the bill violated the spirit of the Senate and asked Carona to pull it down. But Carona declined, saying the speed with which the bill was brought to the floor was crucial to getting around the political pressure brought by payday lenders. Lobbyists for the industry, he said, were on the phone with senators attempting to defeat the bill.

"Any attempt to pull the bill down today," he said, "is an attempt by the payday lending industry to kill this bill."

Fraser angrily replied that no representatives of the industry had asked him to help defeat the bill.

But Fraser was joined in his criticism by Sen. John Whitmire, D-Houston, who also argued that the legislative process should be slowed down to give senators time to consider prospective amendments, adding that he had concerns about Houston's ability to regulate payday lending under the bill.

"What's the rush?" Whitmire asked Carona.

Because "the industry has hired damn near every lobbyist in town to kill this bill," Carona replied.

When Carona replied that he had been in constant contact with the city of Houston to determine its position on the bill, Whitmire erupted, telling Carona that he would represent his own constituents. He again criticized Corona for rushing the process.

"When you were negotiating this most recent agreement, I was chairing [Senate] Criminal Justice for four hours," Whitmire said. "I think this has gotten totally out of control."

Amid heavy criticism, Carona agreed to pull down the bill. He declined to offer a date it might return to the Senate. Earlier, though, he expressed determination to force the bill through in the current session.

If lawmakers are forced to wait to address the issue until next session, "this industry will be so much wealthier, so much more politically powerful that you won’t be able to say no," he said. "You won’t be able to hold the line."