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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

• Financial literacy
• Alternative short-term financial products
• Meaningful market regulation
• In terms of meaningful market regulation, click on the following links to see what the campaign is working on now.
  
  Press Release on Payday Lending Poll
  Short-Term Lending Survey Results
  Short-Term Lending Survey Results (Spanish Version)

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 83rd Legislative Session:

HB 420 Rep. Farias
Relating to requiring that certain notices and disclosures provided by credit access businesses be in foreign languages.

HB 1715 Rep. Pickett
Relating to limitations on the renewal of deferred presentment transactions and motor vehicle title loans.

SB 1001 Senators Davis and Rodriguez
Relating to extensions of consumer credit a credit services organization obtains for a consumer or assists a consumer in obtaining.

SB 823 Senator Carona
Relating to authorized acquisition and delinquency charges for certain consumer loans.

SB 824 Senator Carona
Relating to the administrative fee authorized for certain consumer loans; changing the amount of the fee.

HB 1040 Rep. Anchia
Relating to the repayment of certain extensions of consumer credit facilitated by a credit access business.

HB 1886 Rep. Farias
Relating to requirements applicable to certain credit services organizations and certain extensions of consumer credit the organizations obtain for a consumer or assist a consumer in obtaining.

HB 2019 Rep. Craddick
Relating to a limitation on the total charges in connection with certain extensions of consumer credit facilitated by a credit services organization.

HB 786 Rep. Eddie Rodriguez
Relating to extensions of consumer credit a credit services organization obtains for a consumer or assists a consumer in obtaining.

SB 1247 Senator Carona
Relating to certain extensions of consumer credit facilitated by credit access businesses; providing a civil penalty.
(Companion bill to HB 2706)

HB 2706 Rep. Villarreal
Relating to certain extensions of consumer credit facilitated by credit access businesses; providing a civil penalty.
(Companion bill to SB 1247)

HB 3033 Rep. Eddie Rodriguez
Relating to the confidentiality of information contained in credit access business license applications.

SB 1715 Senator Davis
Relating to a requirement that a credit access business include copies of its agreements with third-party lenders in an application for a license.