Facebook
Twitter
RSSPosts Tagged ‘Cash advances’
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.
Archives
Categories