Lawmakers Lend an Ear to Concerns Over Payday Loans

Lawmakers from both chambers gathered Wednesday to lend support to a range of bills that would limit the loan size and number of installments offered by payday and auto title lenders.

"We have lost some ground, and that is why it is important to do this press conference today – we have a very unified front," said Sen. Rodney Ellis, D-Houston, standing alongside Sen. Royce West, D-Dallas, and state Rep. Tom Craddick, R-Midland. They have all filed bills aimed at regulating the payday and auto title loan industry. "We have to put this back on the front burner," Ellis added.

The press conference came on the heels of two hearings where Senate and House committees considered bills aimed at regulating loans offered by payday and auto title lenders, collectively known as credit access businesses. While advocates of the bills have derided companies for what they consider to be predatory behavior, opponents have expressed hesitation to increase state involvement that would restrict business operations in the state.

"It is a sad day in Texas when the No. 1 state in income and job creation is charging the highest rates on payday loans," Craddick said. "From 2013 to 2014, Texans have paid $2.9 billion in fees for these very high-cost loans."  

Earlier Wednesday, the House Committee on Investments and Financial Services considered House Bill 3047, authored by Craddick, which would create a statewide law similar to city ordinances already in place across the state. The proposed legislation would limit loans to 20 percent of the borrower's annual income, allow for only four installments without refinancing and require a 25 percent principal payment to be made with each installment. It would also create a database, overseen by the Consumer Credit Commissioner, that would collect lender and borrower data.

Such businesses "pass cash along to the consumer with an often exorbitant fee," said J. Ross Lacy, a city councilman in Midland, testifying before the committee. "This traps consumers into a debt cycle they can never recover from."

Midland, in the heart of Craddick's district, is one of 22 Texas cities that have passed ordinances limiting loans offered by payday and auto title lenders. After the ordinance went into effect, Lacy said that five of the 18 credit access businesses went out of business.

"Under the current system, [these companies] seem to benefit more from a customer's financial failure than from a consumer's financial success," said Joe Sanchez, AARP Texas' associate state director for advocacy, adding that one in five borrowers in the state are over the age of 50. 

Rob Norcross, spokesman for the Consumer Service Alliance of Texas, spoke in opposition to the bill. "The way the city ordinances are structured, it would be good for some kinds of single-payment payday loans," he said. "But the requirement that they split the loan into no more than four pieces, that is still going to be too much to pay back for some people."

While Norcross was the only person who testified against the bill in the morning session, several committee members expressed concerns with the legislation. State Rep. Giovanni Capriglione, R-Southlake, called the establishment of a database to be used by private and state entities "intrusive," while implying that Lacy and the city of Midland were trying to impose their own model on the rest of the state.

Rep. Phil Stephenson, R-Wharton, questioned whether or not the state should play the role of protecting people from themselves.

"We have watched these products increase the time of service with the clients that we serve," said Katherine von Haefen, senior program manager at the United Way of Greater Houston. "Inevitably, these families will have a financial emergency and payday lenders pounce on the opportunity to trap these families."

"You think they force families into borrowing money from them?" asked state Rep. Dan Flynn, R-Canton. "You don't really think anyone is pouncing on anyone."

Capriglione added that he lives near an intersection with a number of Starbucks, but that they were not responsible for his behavior. "If I buy a $5 latte, that's on me," he said. 

But for Janice Rivera, from Belton, the terms of the auto title loan she and her family took out were never made clear. "I am one of the people who fell into the trap," she said, speaking before the committee. "They said I misunderstood the 20 pages of paper they gave me, and as of March of this year, we had paid $2,100 in fees and had still not paid off our original $1,500 loan."

On Tuesday, the Senate Committee on Business and Commerce considered Senate Bill 121, by West, which would establish income-based loan limits and limitations on refinancing. It also considered Senate Bill 92, by Ellis, which is a companion bill to the legislation filed by Craddick.

All bills are currently pending in committee.