Reaching a compromise: Legislators seek further payday loan regulations

Texas lawmakers are seeking to tighten regulations on payday and auto title loan operations two years after putting together the first set of guidelines under which such businesses can operate.

While details are still being worked out, the bills will likely address the “cycle of debt” some customers become trapped in after using payday loans to pay off existing short-term debt, lawmakers and staffers said last week.

Rep. Joe Farias (D–San Antonio) has already filed a bill that would require short-term lenders to provide lending terms in multiple languages, but said he would like to see further regulations including a 36-percent interest rate cap to fall in line with similar federal limits for U.S. military personnel.

“I [could] go to three or four lenders, borrow the money, and now I’m $1,200 in the hole to three different payday lenders,” Farias said, adding that interest rates sometimes exceed 500 percent. “All we’re trying to do is find a way to prevent these folks from getting in the cycle of debt ... and not be paying on something for a year or two and never get out of a $300 note.”

Two bills passed last session – House Bill 2592 and HB 2594 – require businesses offering short-term loans to be licensed with the state, provide customers with more clear-cut disclosures of interest rates, and submit quarterly data on loans and interest rates to the Office of the Consumer Credit Commissioner.

However, data collected by the commissioner's office suggests some businesses are still operating outside the regulations, said Steven Polunsky, spokesman for District 16 state Sen. John Corona (R–Dallas), the legislator who sponsored the bills.

Forthcoming legislation is being developed with the cooperation of consumer advocates and industry representatives, Polunsky said.

“At this point, Sen. Corona’s been impressed with the level of thinking and approach that both the industry and the advocates have taken,” he said. “I think there’s a realization that we have to work together to pass legislation through the Legislature, and there’s an excellent level of cooperation.”

Tanya Sastoque, executive director of the Assistance Center of Collin County, said payday loans take advantage of people who may have suffered from unemployment, expensive medical problems or the death or incarceration of a breadwinner.

“They need money and they start borrowing, and they can’t pay it back because it accumulates,” she said. “The interest is so high, and they can’t pay their bills, so they come to us. It’s a problem.”

Rob Norcross, spokesperson for the Consumer Services Alliance of Texas, a trade group representing nearly 3,000 short-term lending offices, said the Alliance's members provide a needed service for clients who do not have any other options to meet emergent financial needs.

Norcross said the group adopted a series of best practices for its members last year in response to the Legislature's efforts to increase regulation. Practices required include full customer disclosure, payment plan options and the barring of cash advances comprising more than 35 percent of a customer's income.

Whatever legislation is approved during the session will likely be a compromise between CSAT's best practices, which have been submitted to legislators, and rollover limits similar to those passed in city ordinances in Austin, Dallas, El Paso and San Antonio, Norcross said.

“You want to craft a solution that creates a safety net for the 8 to 10 percent of people who can’t pay their loans back,” he said, “but you want to make sure that when you’re crafting that safety net you don’t mess up what’s going on with the other 90 percent of the people who seem to be handling this just fine.”

A staffer with the office of Rep. Eddie Rodriguez (D–Austin) said Rodriguez intends to file a bill that would place all short-term lending businesses under the two bills passed last session.

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