If you visited one of the middle to large size cities in Texas, you probably have noted the phenomenon of payday and auto title loan businesses. The storefronts are usually clustered together in areas of blight or significant minority populations. The following article by attorneys Sean Gorman and Jim George of the Texas Appleseed advocacy group appeared in the Dallas Morning News on April 18, 2011.
A powerful lobby team is working overtime to keep the Texas Senate from voting on meaningful payday and auto title lending reform. Bottom line: The industry is refusing to back away from predatory 500 percent interest rates and a statutory loophole that permits them to evade lending laws and, instead, operate as free-wheeling “credit repair” businesses.
What is most shocking is the industry claim that any cap on rates would put this $4 billion industry “out of business.” Where is the proof? These lenders operate under much lower rates in other states. Why not here?
Sponsored by Sens. Wendy Davis (D) of Fort Worth and Royce West (D) of Dallas, SB 1862 represents a step forward for payday-weary cities and the hundreds of voices for reform emanating from churches, charities, the AARP, the NAACP and legal advocates like Texas Appleseed. The bill adds statutory protections to prevent borrowers from becoming trapped in an endless cycle of debt and closes the loophole in state law that allows payday and auto title lenders to operate as virtually unregulated credit services organizations (CSOs).
Why is the powerful payday and auto title lobby trying so hard to kill this bill? Because Texas’ CSO loophole, exploited since 2005, is fueling record profits. An analyst recently quoted in the Wall Street Journal described Texas as “the biggest payday loan state” in the country, and payday reform sponsor Midland Rep. To Craddick (R), a former House speaker, noted that the four publicly traded companies offering payday and auto title loans here and in other states “make 60% of their profit in Texas.”
Desperate borrowers struggling to cover rent or a light bill pay an average of $840 for a $300 payday loan. The fees alone for a one-month $4,000 auto title loan can exceed $1,200.
Texas is now home to more than 2,800 CSO storefronts offering payday and auto tile loans—more than double the number from a few short years ago. Liens filed on vehicles by unlicensed auto title lenders increased from under 3,000 in 2007 to nearly 200,000 liens in 2010.
Predatory lending undermines cities’ economic health and places a growing burden on private charities and faith-based groups to help families struggling with payday or car title debt. A survey of Catholic Charities offices found that nearly 20 percent of its financial assistance goes to rescue families in crisis because of these loans. With 20 payday and auto tile lenders operating within five miles of his Dallas church, a Baptist minister told lawmakers:
“If someone is drowning, instead of throwing them a life preserver, in too many instances, we have thrown them shackles. That is what the payday industry has done to too many individuals.”
Texas has reached a crisis point. Cities including Midland, Lubbock, Dallas and San Antonio have passed resolutions asking state lawmakers to reform payday and auto title lending now. A recent AARP survey found that more than three-fourths of Texans oppose these lenders charging 500 percent interest.
At a time when state lawmakers are grappling with deep, painful cuts to basic services to help close a $27 billion state budget deficit, they have an opportunity to positively impact the bottom line for many struggling Texas families at no cost to the state by heeding the groundswell of public support to put an end to 500 percent lending in Texas.
We applaud the political courage of those standing up for Texas families in the face of unprecedented lobby pressure. There is urgency to act now, and Texans are watching.