Lawmaker files bill to make payday, auto title lenders comply with laws

AUSTIN—Former Texas House Speaker Tom Craddick filed a bill in the Texas Legislature that would apply standards already in place for some small-dollar consumer lenders to the payday and auto title industry.

The Texas Baptist Christian Life Commission has urged lawmakers for several years to craft legislation that would make payday and auto title lenders abide by the same laws as other loan makers.

“HB 2019 would create a level playing field by applying the same fair rate and fee structure on all consumer loans,” said Stephen Reeves, CLC public policy director. “It upholds Texas’ longstanding opposition to usury in its financial markets—replacing the overreaching fees charged by payday and auto title lenders with a fairly structured loan product.”

Preying on the vulnerable

Numerous Texas Baptist leaders have voiced concern about auto title and payday lenders, who they accuse of preying on vulnerable people in their communities and congregations.

Payday and auto title loans as currently offered trap people in debt in two ways, critics assert. Single-payment loans create a cycle of debt by high fees and payments that roll over the loan without decreasing the amount a borrower owes. Installment loans from payday and auto title lenders charge high rates that lead the average loan of $576 to cost someone $1,553 in 98 days—equivalent to rolling over a traditional loan 7.4 times.

 “The state’s turning a blind eye to payday lenders’ usurious practices has shifted the burden to faith institutions and charities to help payday borrowers escape the escalating debt that accrues from failing to pay off payday loans in full,” said Jeff Patterson, director of the Texas Catholic Conference.

Usury limits

Interest and fees caps for consumer loans currently regulated under Texas law average 80 percent annual-percentage-rate—a high rate but much less than what payday and auto title businesses charge. HB 2019 makes payday and auto title lenders—also known as credit access businesses—subject to the same longstanding state usury limits that apply to other lenders.

Under Craddick’s bill, Texas would not be putting these lenders out of business. These same companies operate profitably under rates regulated similarly in other states. According to the Consumer Financial Services Association, the typical fee charged by payday lenders in other states ranges from $10 to $15 per $100 borrowed for a two-week loan. In Texas, according to state data collected by the Office of the Consumer Credit Commissioner, these businesses often charge twice those rates or more.

“The impact of the 500 percent APR charged on payday loans in Texas is overwhelming,” Craddick said. “House Bill 2019 will bring relief to borrowers by ensuring consumer lenders are all operating under the same rates and fees. The legislature cannot stand back any longer while these businesses take advantage of people in need.”