Ellis Tentatively Votes for Improved Payday Lending Plan
Series of amendments, pledge to maintain numerous consumer protections ensures support
(Austin, Texas) — Following a series of consumer-friendly amendments and a pledge by leaders to maintain those protections, Senator Rodney Ellis (D-Houston) today voted in favor of legislation to enact regulation of predatory lenders in Texas.
By a vote of 18-13, Ellis successfully added an additional amendment to cap payday lending interest rates at 36 percent APR, joining many other states.
"I support SB 1247 because the new changes ensure the bill will provide at least some protections for Texas consumers and families and begins to bring predatory lenders under state regulation," said Ellis. "It does not go far enough - I would like to ban payday lending in Texas - but this legislation provides some real lending reform that protects Texas families and consumers."
Payday loans are low-dollar, high-interest loans that target low-income Texans in need of funds to make ends meet, often advertised in saturation on television and billboards. These predatory loans are often a last resort for Texans struggling to provide for their families. Few read the fine print and realize that the annual interest rate on these loans can reach 1,100 percent APR. Meanwhile, pawn shops are limited to charging a maximum interest of "only" 240 percent APR.
|Loan Interest by Type|
|General Commercial Loans||18%|
|Commercial Loans over $250,000||28%|
|Motor Vehicle Loans||27%|
|Pawn Shop Loans||240%|
(Source: Office of Attorney General)
Texas is out-of-step with other states in both allowed interest rates and maximum loan amount. According to the National Conference of State Legislatures, Texas is one of only a handful of states with no real regulation of payday lenders. According to the group, every state bordering Texas, and nearly every large state has stronger consumer protections than Texas.
|State||Maximum Loan||Maximum Interest Rate|
Texas law already prohibits usurious interest rates, but almost a decade ago, predatory lenders created a loophole to escape those regulations. Now, nearly all Texas payday lenders have registered as Credit Services Organizations (CSOs), enabling them through a loophole in state law to no longer be subject to Texas' small loan law or regulation by the Office of the Consumer Credit Commissioner (OCCC). Because payday lenders operating as CSOs are no longer obligated to submit data to OCCC, Texas regulators have no official data on a rapidly-growing, multi-billion dollar industry.
Predatory lending is a major - and still growing - problem in Texas. In 2012, 35,000 Texas families lost their cars to auto title businesses, and payday and auto title businesses drained nearly $1.25 billion in fees from working families for loans at 500% interest and higher. According to the non-profit consumer advocacy group Texas Appleseed, 32% of non-profit clients requesting charitable assistance were in trouble with payday or auto title loans, and Texans pay nearly twice the fees of payday borrowers in most other states.
Ellis warned that the removal of six consumer amendments from the bill would force him to remove his support.
"The package of amendments agreed to absolutely must stay in this bill as it moves forward," said Ellis. "They ensure that Texas moves away from the Wild, Wild West and provide consumers some vital protections rather than simply leave them on their own. I will continue to monitor this bill and will change from modest supporter to fervent opponent if these consumer protections are stripped in the House."