The Texas Legislature is considering clamping down on payday loan companies,and closing a giant loophole that has allowed these business to continue operating as they did before the last “clapdown” law was passed. Here is an article from the Houston Chronicle that discusses the situation in some details:
Bills that would prohibit companies from charging fees to arrange short-term consumer loans are scheduled to be heard by the Senate’s Business and Commerce Committee. Similar legislation has been drafted in the House.
Critics contend payday lenders get around state usury laws by charging exorbitant fees to arrange the loans with third-party lenders, rather than making the loans directly. Those charges can amount on an annual percentage rate basis to more than 500 percent.
The bills threaten the livelihood of such companies, known as credit service organizations, or CSOs, charged Rob Norcross, spokesman for the Consumer Service Alliance of Texas, which represents the industry.
“The bill(s) as written would prohibit credit service organizations from charging a fee for arranging a small, short-term loan,” Norcross said. “If you want to make it illegal to provide (that) service … they are going to be forced to close their doors.”
State Sen. Wendy Davis, a Fort Worth Democrat who authored one of the bills, denied she’s trying to run the lenders out of business.
“It’s an issue of making sure that vulnerable people are not preyed upon in a predatory way,” Davis said. “I’m hearing from people who are finding themselves literally in a debtors’ prison as a consequence of these loans.”
Borrowers can roll the loans over if they can’t repay them on the due date, but Davis said that often lands them in deeper financial trouble because of the additional fees tacked on.
By operating under the state’s CSO laws, payday lenders are not subject to rate and fee caps that govern consumer loans under Texas Finance Code.
The CSOs charge a fee, which can range from $20 to $30 for each $100 borrowed, to arrange the loans. The lender generally charges 10 percent annual interest on each loan.
“It’s an access to credit issue for our customers,” Norcross said. Many of them don’t have access to credit through banks or credit unions. “This is their least expensive option for financial emergencies.”
Similar legislation never made it out of committee two years ago. This time around, Davis said, the various bills have support from both parties.