CitySquare's Public Policy focus on predatory lenders supports legislation to close the loop hole that allows these businesses to operate as Credit Service Organizations (CSO). This article in the Fort Worth Star Telegram explains the importance of the legislation and its impact...
Texas bill targets excessive fees by pay-day lenders
By Dave Montgomery
Fort Worth Star-Telegram
AUSTIN -- Sen. Wendy Davis, D-Fort Worth, reviving one of her top legislative priorities, introduced legislation Friday to crack down on storefront lenders that she said prey on vulnerable Texans by charging usurious fees and interest rates.
Former House Speaker Tom Craddick, R-Midland, and Rep. Eddie Rodriguez, D-Austin, introduced companion measures in the House.
The bipartisan legislation, which targets payday loans, car title loans and tax refund anticipation loans, has the backing of a broad-based coalition that includes AARP, the Christian Life Commission of the Baptist General Convention of Texas and Catholic Charities Diocese of Fort Worth.
Supporters said the measures are designed to close a loophole that has spawned more than 2,800 short-term lending outlets that are not subject to the same oversight as banks and credit unions. Borrowers often refinance the original loan multiple times, with interest and fees often exceeding 500 percent of the original loan amount, said Davis and other supporters.
"We must put an end to these egregious fees and debt collection practices that are destroying the lives of people seeking a short-term remedy to financial challenges," said Davis, who pre-filed the bill in advance of the legislative session that starts Jan. 11. She introduced similar legislation during the 2009 session, but it died in committee.
Craddick said in a statement that payday and auto title loan companies are exploiting the Credit Service Organization Act, which was designed to monitor credit repair services. Companies operating as credit service organizations pay a $100 statewide registration fee that covers an unlimited number of storefront locations and are not subject to licensing, regulatory examinations or oversight, Craddick said.
"When the law was written, lawmakers did not intend the Credit Service Organization Act to become a business model for payday and auto title loan companies to operate," he said.
The head of a statewide association representing credit service organizations strongly opposed Davis' legislation.
"CSOs that facilitate small, short-term loans in Texas are not opposed to future discussions about additional oversight," said Alex Vaughn, president of the Consumer Service Alliance of Texas. "However, we strongly oppose this measure and any other bill that effectively eliminates consumer access to short-term credit."
The trade organization includes Fort Worth-based Cash America International, which operates more than 260 pawnshops in Texas. Vaughn, who is also vice president of state relations for the company, said Cash America and similar companies are subject to regulatory oversight by "numerous federal and state agencies" and perform a valuable service for Texas consumers.
"Our products have been out there for years," he said. "We're meeting Texas consumers' financial needs."
Davis' legislation would place the short-term lenders under the same regulatory oversight as traditional lenders and halt practices leading to excessive fees and interest rates.
Davis filed a separate measure providing protections for service members and dependents seeking short-term loans. That bill would limit the interest rate they are charged to 36 percent, the same ceiling in federal legislation signed by former President George W. Bush.
Find out more about what you can do to support this effort here.
Also, please join us Thursday at First United Methodist Church at CitySquare's Urban Engagement Book Club to learn more about predatory lending practices as we review the book, "Broke USA: From Pawnshops to Poverty, Inc. - How the Working Poor Became Big Business." by Gary Rivlin".