A recent article in the Texas Observer exposes the fact that a system set up to protect all of us, actually doesn't work for quite a few of us!
The Texas Finance Commission is supposed to protect citizens in our state from being exploited by financial institutions. More particularly, they should be providing protection from people who have been victimized by predatory lenders. Unfortunately, the level of protection they provide is, shall we say suspect...
"The Texas Finance Commission is supposed to protect consumers from being plundered. The commission writes regulations for loans and lines of credit. When the commission was created in 1943, state leaders stated in the agency’s mission that it “enhance the financial well-being of the citizens of Texas.”"
"Instead, commissioners are enhancing the financial well-being of banks, mortgage and payday lenders and pawnshops. In just one year the payday lending industry makes more than two million loans in Texas, draining borrowers of more than $280 million in fees and interest payments. Representatives from the financial industries dominate the commission’s nine-member board. The chair, William “Bill” White, is vice president of public affairs for Cash America International Inc., one of the largest payday-lender and pawnshop chains in the country. Not one commission member represents consumers."
"...Despite its low profile, the agency’s rule-making can have devastating financial consequences for Texas borrowers, as in the case of Valerie Norwood."
"In 2004, Norwood, a disabled retiree living in Austin, took out a $58,000 home equity line of credit from the New Century Mortgage Corp. She paid seven points on the loan (a point is equal to one percent of the loan and is intended to lower the interest rate) for an adjustable-rate mortgage that started at 8.54 percent, according to court documents. She ended up paying $4,060 in total fees at closing, and her interest rate was still too high for someone on a fixed income."
"Norwood didn’t realize it, but a rule made by the commission allowed her lender to ratchet up the fees on her home equity line. In 2003, the Texas Legislature passed a law allowing homebuyers like Norwood to take out lines of credit on their homes. To protect consumers, legislators capped fees at 3 percent—but left it up to the Finance Commission to interpret what qualifies as a fee. Shortly thereafter, the commission ruled that the 3 percent cap did not apply to most closing-cost fees. Under the cap, Norwood should have paid only $1,740 in closing costs instead of the $4,060 her lender charged. After being gouged on her loan, Norwood joined several other homeowners in a lawsuit against the commission over its ruling. Instead of working with consumers to lower excessive fees, the commission fought them in court."
"In 2006, State District Judge Scott Jenkins sided with Norwood and the other homeowners, finding that the commission had made the state’s 3-percent cap “essentially meaningless.” The commission and the banking industry appealed the case with the 3rd District Court of Appeals in Texas and lost again. It’s now under review before the Texas Supreme Court. Whatever the outcome, the commission’s support of the industries it regulates won’t change unless state leaders do something about the agency’s board."
"It’s doubtful we’ll be hearing or seeing much of the Texas Finance Commission in the hearing rooms of the Legislature. On the final day of the last session, the commission had itself exempted from the legislative appropriations process and its grueling public hearings. Drew Darby, a Republican state rep from San Angelo, tacked the lengthy proposal onto legislation carried by fellow Republican Rep. Vicki Truitt of Keller during a conference committee meeting. In the frenzy of the session’s final hours there’s little time to ponder the fine print. With the commission’s newly independent status, it will only submit a yearly report to the Legislature instead of seeking regular appropriations. This legislative session, the Finance Commission won’t have to submit itself to public scrutiny. The industries they regulate prefer it that way."
CitySquare and it's allies are up against a huge corporate interest in seeking to get the loophole which allows predatory lenders to charge up to 800% - 900% interest. It's not just a matter of personal responsibility; it's also a matter of public accountability.
It's hard to hold the chickens accountable if the fox is in the hen house!
The rest of the Texas Observer article can be read here.