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Law Tightens Rules on Payday, Auto Title Loans
January 7th, 2012
Payday lenders are coming under the microscope
Last week new laws aimed at curbing predatory lending took effect in Texas, meaning payday and auto title loan businesses will have to be licensed by the state and post a schedule of fees in a visible place, similar to the overhead menus seen in fast-food restaurants. Proponents of the new regulations passed by lawmakers during the 2011 session say they’re needed because the practice of offering short-term, high-interest loans to consumers has led thousands of Texans into a cycle of debt and dependency.
Payday loan businesses
The number of payday loan businesses in Texas has more than doubled, from 1,279 registered sites in 2006 to more than 3,500 in 2010. Though the new laws took effect Jan. 1, state regulators have been working for months to finalize the language of the rules, and businesses are in the process of coming into compliance. Eventually, lenders will be required to disclose more information to their customers before a loan is made, including the cost of the transaction, how it compares to other types of loans and interest fees if the payment is not paid in full.
The Consumer Service Alliance of Texas
Rob Norcross, a spokesman for the Consumer Service Alliance of Texas, which represents the payday and auto title lenders, said his industry welcomes the increased scrutiny. “You want people to meet certain standards to operate these businesses,” Norcross said. “Having uniformity and transparency in cost disclosure is probably good for competition, which will be good for customers.” As of the end of 2011, Norcross said that about 3,000 businesses had filed paperwork for licensing. The application cost per location is $800, and regulators conduct background checks and require financial stability, including at least $25,000 in net assets.
Consumer and faith-based groups
Consumer and faith-based groups say payday lenders have run amok with their promises of providing desperate Texans with quick money. In the midst of the regulation debate in the Texas Legislature, Bishop Joe Vasquez of the Catholic Diocese of Austin testified that nearly 20 percent of the people the diocese was assisting had reported using payday and auto title loans. “If payday lenders were not making money from these families to line their own pockets, perhaps these families would not need the charitable and public assistance they receive,” Vasquez said in the February 2011 hearing. “They are generally embarrassed to admit they sought a loan without understanding the fees involved.”
A payday lender says:
I know the industry is frowned upon for practices many perceive as being predatory, but it all boils down to access to credit, and many Texans from all walks of life find themselves struggling at some point to pay the bills. “We provide loans to people with riskier credit, and there’s a cost to do that,” he said. “We believe the state did a good job in balancing the financial impact of these new regulations with the needs of the consumer so that the consumer has proper protection and oversight.”
Surprising Support Greets Texas’ Proposed Payday Loan Rules
June 4th, 2011
Regulation at last
Two bills establish a licensing and regulatory framework for the short-term consumer loans, await Gov. Rick Perry’s signature. They are two measures passed by the Legislature last month that will bring payday loans lenders and auto title lenders under the authority of the Consumer Credit Commission. The commission is charged with writing the final rules governing such business in Texas. The bills do not cap fees or loan amounts.
Historic law
“Getting a new regulatory scheme in place for a big industry is history-making by Texas standards,” said Don Baylor, senior policy analyst at the Center for Public Policy Priorities in Austin. Baylor said he would have preferred limits on the size of loans based on borrowers’ income and how many times a payday loan can be renewed, but he thinks “it’s important to have clear, simple, standard disclosures so the consumer can make an informed decision.”
Lenders have no problem
Lenders were quick to say they don’t have a problem with those efforts, although the Consumer Service Alliance of Texas, an industry group, opposed efforts to cap rates charged on the loans. “We’re happy this passed. A lot of legislators told me they wanted to get some regulations on the books,” said Dan Feehan, CEO of Fort Worth-based Cash America International, the nation’s biggest operator of pawnshops and a payday lender. According to state filings more than 3,000 storefronts make payday or auto title loans in Texas,
Payday loans
Payday loans are simply cash advances, generally for a week or two. A borrower writes a check for the loan amount, plus a fee, the common amount is $15 per $100 borrowed, while the lender holds the check for the agreed time, after which it can be cashed or redeemed by the borrower.
Auto title loans
Auto title loans generally are for longer terms, typically a month, and the borrower puts up a paid-up title to a vehicle as collateral.
The legislation
The legislation, authored by Rep. Vicki Truitt, R-Keller, classifies both under the newly created category of “credit access businesses.” Lenders previously operated under as “credit services organizations” whose fees and loan terms were largely unregulated by the state.
Consumer advocates
Consumer advocates frequently criticize both types of loans as abusive because they carry heavy fees that can quickly pile up when borrowers don’t repay on time. Among other provisions, the bills require standard disclosures of fees and interest rates and mandate the collection of data on borrowers, such as how much and how often they borrow using payday loans, or how often vehicles are repossessed on title loans. Among those disclosures is likely to be a comparison of how much a payday or title loan costs over a variety of terms compared with an alternative, such as a high-interest credit card.
Not easy
Truitt, who chairs the House Committee on Pensions, Investments and Financial Services, said Thursday that her bills were the result of hours of negotiations between the industry and consumer advocacy groups aided by the University of Texas Law School’s mediation center. She and others said Perry is expected to sign the bills, which would take effect Jan. 1.
The third bill
A third bill by Truitt would have put caps on loan amounts and limited how many times short-term loans could be renewed. But it and other more restrictive measures, including proposals by Democratic Senators Wendy Davis of Fort Worth and Royce West of Dallas as well as Rep. Tom Craddick, R-Midland, failed to garner enough support during the legislative session.
Some Wisconsin Republicans Favor Payday Lenders Despite Their Bad Reputation
May 28th, 2011
Once again Wisconsinites may be able to secure loans using auto titles
This is according to a proposal in the state Legislature which is designed to roll back restrictions on payday lenders. Repealing the law that was passed last year is a bad idea for two reasons. The first is that it exposes those already in dire economic situations to lenders that charge shockingly high annual interest rates of up to 500 percent or more. The second is that lawmakers want to insert the change in the state budget, and it doesn’t belong there.
The proposal is added
The Joint Finance Committee voted 11-5 this month to add the proposal to the budget. The legislature has long advocated keeping policy issues out of the budget, which should only be about spending. Both parties have been guilty of this, but that doesn’t make it right. If lawmakers are going to slip provisions into the budget, these are terrible ones to choose.
Payday loans and auto title loans
These can exacerbate the debt spiral. If people are short on cash, they can get a short-term loan from a lender by paying a fee and writing a post-dated check. The problem comes when the cash is used, and there aren’t enough funds to cover the loan when it comes due.
Interest rates
The interest rates that auto title loan lenders charge would make credit card companies blush. They put people in jeopardy of losing their means of transportation if they can’t pay their debt.
Predatory lending practices
Last year, Wisconsin decided it had had enough with predatory lending practices. Sen. Mike Ellis of Neenah called short-term lenders “legal thieves”. This year, lawmakers are deciding to let them creep back into the market. It’s just setting the poor up for further misery.
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