Wednesday, February 23, 2011

More Progress Against Predatory Lenders

CitySquare, allied with Texas Faith for Fair Lending, the Center for Public Policy Priorities, and the church coalition FICA (Friendship West Baptist Church, Inspirational Body of Christ, Concord Church and Antioch Fellowship Baptist Church), and other groups throughout Texas, is making even more progress in closing the loophole on predatory lenders. 
On yesterday, Senate hearings in Austin featured testimony which spoke of the need for businesses which specialize in short term loans to end their usurious practices. 

"“We’re not against the services at all. We’re saying make it fair,” said Dallas City Council member Jerry Allen, testifying in favor of legislation to force payday and car title lenders to operate under rules that apply to banks and credit unions."
"Proposals by Sens. Wendy Davis, D-Fort Worth, and Royce West , D-Dallas, would close a loophole that allows the short-term lenders to operate as “credit-service organizations” and avoid those regulations. Rep.Tom Craddick, R-Midland, has filed similar legislation in the House."
"In some cases, charges by payday lenders in Texas reach an annual percentage rate of 500 percent."
"“This is a gold rush,” said Sen. John Carona, R-Dallas, who chairs the Senate Business and Commerce Committee. Carona said the companies are springing up by the thousands to serve customers who apparently need them, adding that they’re entitled to make a profit."
"“I just don’t want them to absolutely rape these consumers,” he said."
"The Consumer Service Alliance of Texas, an industry group, has opposed Davis’ bill, but spokesman Rob Norcross indicated he’s willing to work on a compromise."
"“We are not against reasonable, effective, additional oversight,” he said."
"Davis said she would keep communicating with the industry to find a “sweet spot” that would allow the businesses to prosper but be fair to the most vulnerable citizens."
"“In my opinion there’s a middle ground,” she said."

Senate Davis, says further in the Texas Senate News...

"When payday and auto-title lenders loan money, said Davis, they require a fee beyond the interest. Customers are not allowed to pay the loan in installments; they must pay the full principal within the loan period, usually a short time ranging from a few weeks to a few months. If the customer cannot pay the loan in full, they can pay the fee again, termed a "roll-over" and again until they have the money to pay off the principal. This can lead to customers repaying many times more than the initial loan before they can finally clear the debt. Davis said that nationally, 90 percent of these types of loans are rolled over 5 times, with nearly two-thirds of these loans rolled over 12 or more times. For a sixty dollar fee charged on a $300 loan, a person rolling over five times ends up paying the lender twice the amount borrowed, plus interest."

"Davis' first bill, SB 253, would close the loophole that permits these lenders to avoid state oversight. The bill does not set an interest rate for payday lenders, but would subject them to the same state usury and fee regulations that apply to all other loans in Texas. "Payday lenders and car title loan lenders should not be treated differently than other lenders in Texas, avoiding rate regulation, reporting, oversight and investigation because they are functioning within a loophole," said Davis."
Dallas' City Council unanimously passed a resolution to the state legislature in support of this initiative. The council will soon take up a zoning ordinance to regulate the location of these businesses to mitigate the economic impact of their clustering in certain neighborhoods.

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