House bills could expand predatory lending, advocates warn

Texas House Chamber (Photo by Eric Black)

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AUSTIN—Two bills pending in the Texas House of Representatives could expand predatory lending in the state, some religious leaders and consumer advocates warn.

One would roll back ordinances cities around the state have enacted to curb abuses of payday and auto title lending, fair-lending advocates assert. The other would reverse a borrower protection provision lawmakers enacted in 2001 regarding sale-leaseback transactions.

HB 3899, filed by Rep. Drew Springer, R-Muenster, would prevent cities from placing restrictions on businesses that operate in more than one Texas city.

The bill would preempt ordinances 45 Texas cities have adopted that regulate payday and auto title loans.

Proponents of HB 3899 assert consumer issues should be handled at the state level and be applicable to all Texans, rather than allowing businesses to operate differently from one city to another.

In contrast, the Texas Municipal League has called the bill “harmful,” saying cities are “under siege” in the state’s legislature.

‘Cuts cities off at the knees’

“It’s a broadly preemptive bill that cuts cities off at the knees,” said Ann Baddour, director of the Fair Financial Services Project at Texas Appleseed.

As part of the Texas Fair Lending Alliance, Texas Appleseed and about 60 other partner organizations such as the Texas Baptist Christian Life Commission encouraged cities to pass a unified ordinance regarding payday lending when state lawmakers failed to pass reforms.

The unified ordinance sets limits on the amount payday and auto title lenders can charge based on a percentage of a borrower’s gross monthly income. It also includes a requirement that a significant percentage of each payment apply to a loan’s principal.

The ordinances establish a baseline for fair market practices by lenders, Baddour explained. They are good for consumers and for local economies, because they help protect families and individuals from becoming trapped in a cycle of unending debt, she added.

‘Care for the poor’

kathryn freeman 130
Kathryn Freeman

Biblical admonitions to demonstrate love for one’s neighbor motivate Christians to become involved in curbing abusive lending practices, said Kathryn Freeman, CLC public policy director.

“Scripture warns against excessive interest rates and calls us to care for the poor. As a result, the Christian Life Commission has worked with pastors across the state to pass local ordinances to limit predatory practices by the payday and auto-title loan industry,” Freeman said.

“These ordinances have not prohibited payday lending. They have simply made the terms of such loans more fair so borrowers can actually pay off their loans without accumulating hundreds of dollars in excessive fees. The local payday and auto-title lending ordinances have provided a way for us to love our neighbors, and we hope the legislature will stop trying to preempt them.”

Michael Evans

Michael Evans, president of the Baptist General Convention of Texas, agreed.

“Those who have the most to lose are victimized by predatory lending. As Christians, we have a mandate to protect the interests of those who cannot protect themselves—to be a voice for the voiceless and a help to the helpless,” Evans said.

At the same time, Christians have a responsibility to pray for elected leaders, particularly that they have the wisdom and courage to act for the public good, he stressed.

As pastor of Bethlehem Baptist Church in Mansfield, Evans noted he has seen the impact of predatory lending on vulnerable people in his community—particularly senior adults on fixed incomes.

“It’s a sinful, villainous act” for lenders to prey upon desperate people with limited means, he said.

Sale-leaseback ‘scheme’

The other bill that has drawn concern from consumer advocates and members of the faith community would re-open a loophole in lending law the 77th Texas Legislature closed. HB 3292, filed by Rep. Roland Gutierrez, D-San Antonio, allows businesses to offer cash advances based on a sale-leaseback arrangement.

The bill’s proponents assert it would bring Texas statues in line with other states and offer consumers an additional financial option.

Sale-leaseback is “a scheme to evade state rate and fee caps for consumer loans,” the Texas Fair Lending Alliance insists.

In a sale-leaseback, a borrower agrees to sell an item for a set amount and then leases it back from the buyer, paying a lease fee every two weeks—often at 30 percent or more of the loan amount.

“Sale-leaseback was prevalent in Texas in the 1990s as a way to get around the state’s usury laws,” Baddour explained.

An interim report by the Senate Committee on Economic Development in 2000 concluded the sale-leaseback industry “embraced the subterfuge of renaming the loan transaction in order to avoid regulatory oversight by the Office of Consumer Credit Commissioner.”

‘Utterly perplexed’

The next year, lawmakers designated sale-leaseback transactions as loans, making them subject to consumer protections and state legal limits. HB 3292 essentially would reverse that action.

Sale-leaseback is another form of predatory lending, and HB 3292 is “full of deceptive, fake protections” for consumers, Baddour asserted.

Its language would allow sale-leaseback arrangements to avoid the Military Lending Act, she noted. That makes it particularly harmful to military families and veterans, who already are caught in the predatory lending debt cycle at rates six times greater than the general population, she added.

“It hurts the poor. It hurts our military and their families. It hurts veterans. It is misguided policy,” she said. “I am utterly perplexed. Why would anybody want to support this?”

Both HB 3899 and HB 3292 currently are in the House Calendars Committee. Rep. Four Price, R-Amarillo, is chair, and Rep. Joe Moody, D-El Paso, is vice chair.

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