Texas to Consider Bolstering Payday Loan Laws

By: Javi Calderon
Texas to Consider Bolstering Payday Loan Laws

The State of Texas is one of only six states in the U.S. that don’t regulate payday loans. State Senator Wendy Davis of Fort Worth aims to change that.

Critics of the payday lending industry believe that a loophole in state laws allow cash advance lenders to charge exorbitant fees to arrange a loan between customer and third-party loan lenders.

Davis has submitted two separate bills to the Texas Senate Business and Commerce Committee. The first, SB 253, intends to close the loophole that allows payday lenders to operate without state oversight. The bill would force payday lenders and auto title lenders to adhere to the same usury and fee regulations as other consumer in Texas. The bill, however, would not set an interest rate.

Those inside the industry believe that the loan fee is necessary for the lender to make a profit. If the law passes as written lenders across the state might be forced to close their doors.

Gerri Guzman of the Consumer Rights Coalition argues that the payday loan industry provides an option for consumers with poor personal credit.

Michael Price, a pastor and member of the Texas Coalition for Consumer Choice, promotes personal responsibility and a consumer’s right to make their own financial decisions. Price argues that fees and rates for a payday loan are less expensive than bounced check fees or penalties for late utility payments.

SB 254, on the other hand, would cap interest rates on car title loans and payday advance loans for consumers who are members of the military. The cap would be 36% APR. A similar bill was introduced two years ago but was not successful.

The strong-armed Texas payday loan industry lobby has pushed Davis and her colleagues to rework the proposed legislation. Davis has agreed to negotiate a unique interest rate structure for payday lenders and states that she has no intentions of putting the industry out of business.