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Policy

High Cost of Small Dollar Lending in Texas

Explanations of payday and auto title loans

  • A payday loan is a small cash advance—usually ranging from $100 to $1,000—due in full plus interest and fees, in two weeks, with a post-dated check or electronic access to a debit account as collateral.
  • An auto title loan is similar except that a car title is used as collateral. These loans are due in full, plus interest and fees, at the end of a short term, typically one-month. If the borrower cannot pay the full amount at the end of a month, the loan company can take the car.

Reason that Texas payday and auto title lenders can charge the unprecedented fees

  • In 2001, the Texas Legislature passed a law that effectively capped interest rates and fees for payday loans. To avoid complying with state lending laws, payday and auto title lenders have exploited a loophole, where they claim to be “Credit Services Organizations” (CSOs). Instead of making loans, they get around the law by charging excessive fees to broker and guarantee loans.  Based on 2011 legislation, a Credit Services Organization (CSO) is now called "Credit Access Business" (CAB).  For more information about the 2011 legislation click here.
  • Payday and auto title lenders in Texas often charge upwards of 500% APR for an average $300 loan. This translates to a payday borrower in Texas will pay $840 for a $300 loan.
  • Average payday borrowers get back-to-back loans many times before they are able to pay the loan in full and end up paying many times the original loan amount. In fact, more than 75% of payday loans are taken out within 2 weeks of the previous loan in order to fill the financial gap caused by the loan itself. This is how the loans catch a borrower in a cycle of debt.
  • Concentrations of payday/auto title locations stunt property value appreciation and give neighborhoods a look of economic decline.

Solutions

  • Alternative short-term financial products
  • Meaningful market regulation
  • Financial literacy

RAISE Texas is committed to supporting legislation that will close the CSO loophole and will hold all payday and auto title lenders accountable for their rates and fees. In order to have success in the legislature, it is going to take the entire RAISE Texas network and more to discuss this problem with elected officials on all levels. Stay informed of the policy agenda to stop the high cost of lending in Texas by visiting this page frequently, or by signing up to be a part of the Alternative Small Dollar Consumer Loans Products and Policies Campaign.

Bills Introduced During the 85th Legislative Session:

Payday, Auto Title, and Consumer Loans Regulations

HB 1134 Rep. Craddick
Relating to credit services organizations and extensions of consumer credit facilitated by credit services organizations; increasing a criminal penalty.
04/25/2017 Considered in a public hearing i the Investments & Financial Services Committee, and bill was left pending.

HB 197 Rep. Bernal
Relating to contracts and other documents issued by credit access businesses.
02/14/2017 Referred to Investments & Financial Services Committee

HB 741 Rep. Bernal
Relating to the affordability of extension of consumer credit. 04/25/2017 Committee substitute bill considered in a public hearing in the Investments & Financial Services Committee, and bill was left pending.

HB 975 Rep. Giddings
Relating to the threat or pursuit of criminal charges against a consumer in association with certain extensions of consumer credit; providing a civil penalty.
05/09/2017 Committee substitute bill passed favorably out of committee as substituted, and was sent to Calendars.

HB 877 Rep. Turner
Relating to prohibiting certain telemarketing calls by a credit access business.
04/25/2017 Placed on the General State Calendar but failed to pass to engrossment. 

HB 2008 Rep. Cosper
Relating to deferred presentment transactions made to military borrowers. 
05/24/2017 Passed the full House and the Senate.

SB 836 Sen. Rodriguez
Relating to a contract or other agreement between certain governmental entities and a credit services organization or related business.
02/27/2017 Referred to Business & Commerce Committee

HB 1733 Rep. Uresti
Relating to the maximum permitted sum of fees, interest, and other amounts due under certain extensions of consumer credit.
03/06/2017 Referred to Investments & Financial Services Committee

HB 60 Rep. Romero
Relating to requiring a credit access business to verify the vehicle identification number used to obtain a motor vehicle title loan.
02/13/2017 Referred to Investments & Financial Services Committee

HB 153 Rep. Schaefer
Relating to the authority of a municipality to regulate occupations.
02/15/2017 Referred to Urban Affairs Committee

HB 3448 Rep. Longoria
Relating to single premium term life insurance offered in connection with certain consumer loans.
05/11/2017 Bill was placed on the General State Calendar.

HB 3419 Rep. Lucio III
Relating to increasing the maximum reference base amount for certain consumer loans.
05/05/2017 Committee substitute bill passed favorably as substituted out of the Investments and Financial Services Committee and sent to the Calendars Committee. 

SB 1121 Sen. Garcia
Relating to the presumption of intent in the prosecution of certain criminal cases involving theft by check or issuance of a bad check.
03/07/2017 Referred to Criminal Justice Committee

SB 1155 Sen. Menendez
Relating to fees paid to certain credit services organizations in comection with certain extensions of consumer credit.
03/09/2017 Referred to Business & Commerce Committee

HB 3508 Rep. Neave
Relating to a contract or other agreement between certain governmental entities and a credit services organization or related business.
04/25/2017 Considered in a public hearing in the Investments & Financial Services Committee and bill was left pending.

HB 3947 Rep. Laubenberg
Relating to judicial review of certain regulations that apply to state licensees.
04/11/2017 Considered in a public hearing in the Judiciary & Civil Jurisprudence Committee, and bill was left pending.

SB 2178 Sen. Huffines
Relating to judicial review of certain regulations that apply to state licensees.
04/25/2017 Considered in a public hearing in the Business & Commerce Committee, and bill was left pending.

Potential Pre-emption including Payday and Auto Title Local Ordinances

HB 3081 Rep. Capriglione Relating to the regulation of persons and business activities subject to regulation by certain finance agencies.
05/01/2017 Reported favorably without amendment(s) out of the Investments & Financial Services Committee, and bill was sent to Calendars.

SB 1530 Sen. Estes Relating to the regulation of persons and business activities subject to regulation by certain finance agencies.
04/25/2017 Considered in a public hearing in the Business & Commerce Committee, and bill was left pending.

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