The 83 session of the Texas Legislature began this month. Among the public policy issues that we've been working on at CitySquare has been strengthening the laws to regulate payday and auto title lending in our state.
Those laws, HB 2592 which provides for notice and disclosures for consumers to enable consumers to make more informed choices and HB 2594 which calls for licensing, oversight, examination and enforcement authority to the OCCC (Office of Consumer Credit Commissioner) and also requires quarterly reporting and annual report to OCCC of important data enforcement of fair debt collections practices as well as federal military lending laws, while good, still don't address other in the industry.
Short term lenders have become disturbingly adept at circumventing local ordinances as well as the new state laws.
And with more research, we find that this business model is more troubling. The auto title loan industry in Texas repossessed more than 25,000 cars because of consumers being late repayment (in one case, only late for one day).
According to a study done by the Texas Catholic Conference, Catholic Charities, Goodwill, YWCA, 79% of respondents reported that it took more than one month to repay a payday or auto title loan. Nearly 100% of borrowers, coming to these agencies for financial assistance, report that these loans make it difficult to pay their other bills.
In Killeen, Texas, clients of Goodwill, 80% of borrowers said they did not receive the disclosure information required by HB2592.
Interestingly enough, Killeen is a military town. State law requires that military personnel be charged no more than 36% for a 90 day loan. The industry skirts this federal law by making 91 day loans...or longer.
More troubling news?
• 4 out of 10 borrowers rollover loans 5 or more times (Texas Office of Consumer Credit Commissioner consumer disclosure)
• After 5 loan rollovers, a borrower has paid $690 in fees and still owes the entire $500 loan
• This high-cost debt cycle often drives borrowers to social service agencies to meet basic needs
• In the first three quarters of 2012, Texas auto title businesses repossessed 645 cars every week
It's important that we reign in the practices of this industry. These businesses make poor people poorer. People in desperate financial circumstances don't deserve to have those circumstances made worse. Dallas, Austin, San Antonio and now El Paso are cities which believe this so strongly they have passed the strongest ordinances in the nation to regulate these businesses.
It's time for the Texas State Legislature to catch up...