The Texas Association of Goodwills, a client of Arnold Public Affairs, is working to reform payday lending activities in the state and is joining with other organizations to support these bills.
More details about the bills were posted in the February 22nd edition of Harvey Kronberg’s Quorum Report:
Senators on the Business & Commerce Committee were split along partisan lines today as to whether the state’s payday lending industry needed regulation.
Sens. Wendy Davis (D-Fort Worth) and Royce West (D-Dallas) said the state’s payday loan and car title lending industries, which have flourished in the last five years, have operated outside the regulation placed on other lenders and without limits on the types of fees they chargedesperate consumers.
Because these short-term loans are often rolled over, again and again every one or two weeks, consumers often pay fees that are far in excess of the original loan. Just how bad the problem is in Texas is hard to pinpoint because no agency has been given the statutory authority to track or regulate the industry, Davis said.
Short-term lenders have taken advantage of a section in state code that allowed the creation of credit service organizations. Those credit service organizations, or CSOs, secure and manage loans between a lending back and the consumer.
“When this was passed in 1987, the intent was clearly to enable those with bad credit to build up a positive lending history,” Davis said. “But instead, over 98 percent of the registered credit service organizations are either auto title or payday lenders who do anything but help people repair their credit.”
The number of CSOs has grown from 1,279 in 2006 to 3,500 in 2010. Three bills were presented this morning. West’s version, almost identical to Davis, will go away. A third bill is focused on those serving in the military. The bill would provide the ability to track, regulate and limit the fees that go to CSOs.
The Office of Consumer Credit Counseling, which is not necessarily the organization that can regulate the industry, has received about 400 complaints on payday and auto title lenders. Commissioner LesliePettijohn said states fall into three categories: a third of the states have outlawedpayday lending; a third have put caps on fees and downsized the industry; and a third have little regulation or no limits on the fees associated with payday lenders. Texas falls into the final category.
The Democrats’ goal, which they achieved with little success, was to pin down the numerous payday lenders in the room on what would be a reasonable rate of return without killing the industry altogether.
“This particular business model is somewhat necessary, but it should be the loan of last resort, something in order to pay the rent,” West said. “The question on this, in my mind, is how much should the fee be in order to establish the relationship. I understand there’s an issue concerning interest. If you’re assuming certain risks, how much should you make off of taking on that certain risk. It should be a reasonable fee.”
Sens. Chris Harris (R-Fort Worth) andMike Jackson (R-Lake Jackson), on the other hand, raised doubts that the industry needed to be regulated at all. Harris said he had reviewed all the files in his office and could find only two complaints ever lodged with him about the payday lending industry.
“I’m just wondering if we’re trying to fix something just to fix it,” Jackson said. “I guess if there is a huge problem out here, I’m having a hard time finding the people, everyday people that live in our districts,that are having big problems.”
Testimony from the industry failed to clarify what limits might be set on fees. Chair Sen. John Carona (R-Dallas) chastised one agency representative for being less than forthcoming about why he thought regulation would drive his company out of Texas. He requested additional information be brought to thecommittee next week.
Visit the Quorum Report (subscription required): here.