Efforts to increase regulation of payday lenders in Texas could be in trouble as consumer groups fight for stricter lending rules than those proposed in the legislation.
Senate Bill 1247, by the state Sen. Jean Carona, R-Dallas, would establish new regulatory guidelines for lenders who offer payday loans and auto titles. Short-term lenders, who offer small loans with high interest rates and high fees, have long been angered by critics who say the services target low-income borrowers and charge outrageous prices. . But industry advocates say the loans provide financial flexibility to low-income borrowers.
Among other things, Carona’s proposal would limit the maximum loan size to a percentage of the borrower’s monthly income and cap the number of times a borrower could roll over outstanding loans.
The initial version of the bill received measured praise from consumer groups. But that support has eroded amid fears that the bill’s consumer protections have been watered down and key provisions replaced with language favored by industry trade groups.
“It’s been pretty quick over the past two weeks,” said Don Baylor, senior policy analyst at Center for Public Policy Priorities, an Austin-based liberal think tank that is involved in negotiations to restore consumer protections to the measure.
“The last version that was in committee set a lot of consumer groups back,” Baylor said. “Much of the industry has actually testified in favor of the bill.”
The Texas Consumer Services Alliance, a trade organization representing short-term lenders, declined to comment for this story. In a previously prepared statement, the organization said it supports “meaningful and effective regulation of consumer borrowing in Texas.”
“CSAT has relentlessly supported efforts during this year’s legislative session to create a safety net for borrowers who, unfortunately, are chronically behind in their ability to repay their debts,” the statement said.
In 2011, lawmakers increased state oversight of payday lenders and auto title lenders, requiring companies to be licensed and clearly display a list of fees.
During the current legislative session, lawmakers have proposed additional regulations. Former President of the Chamber, representative of the State. Tom craddick, R-Midland, filed a measure that would extend the already existing rules for small loans to auto title and payday lending activities.
Most payday loan bills, so far, have been left hanging in committee, but SB 1247 has received the lion’s share of attention from reformers and industry.
Last week, a new version of the bill emerged that consumer advocates say weakened many consumer protections.
In the original bill, a payday loan taken out within five days of a previous loan was considered refinancing – a rule designed to prevent borrowers from renewing their loans indefinitely, paying more fees and of interest.
Consumer activists wanted a seven-day deadline, but the revised bill would reduce the deadline to two days.
In the original bill, the amount of some payday loans was capped at 15% of monthly income for those earning less than $ 28,000 per year, and 20% for those earning more. In the new version of the bill, these limits are set at 30% and 40%, respectively.
Baylor said the new monthly limits simply explicitly allow current practices.
“It’s kind of like putting a speed limit of 75 miles per hour on a residential road,” he said. “You can say it’s a limit, but it won’t make anyone any safer.”
To complicate matters, the new state regulations would trump city ordinances that regulate short-term loans. Since 2011, several cities in Texas, including Austin, Dallas, San Antonio and El Paso, have adopted more restrictive regulations than the current version of SB 1247. If the bill passes, the restrictions on payday loans would be relaxed. in these areas.
San Antonio city councilor Diego Bernal testified against the bill on March 19. He told the Senate Business and Commerce Committee that the bill would “significantly weaken” the city’s regulatory structure.
Despite concerns over the new version of the bill, consumer advocates have praised Carona.
Ann Baddour, senior policy analyst at Texas Appleseed, a social rights organization, said Carona and her team had “worked very hard to push the troubleshooting and auto title companies to agree to meaningful reform.”
The payday loan industry wields great political influence in the legislature, having made a donation more than $ 2 million in the 2012 election cycle, including more than $ 300,000 to Speaker of the House Joe Straus, according to the Political Watch Group Texans for public justice.
But changes to the bill could cost the support of lawmakers seeking to reform. The sponsor of the bill, Representative Mike Villareal, D-San Antonio, said during the committee hearing on March 19 that he did not believe the new version would provide adequate protection for consumers.
The Senate Committee on Business and Commerce could vote on the bill as early as next week.