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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 Passed During the 85th Legislative Session:

Payday, Auto Title, and Consumer Loans Regulations

HB 2008 Rep. Cosper
Relating to deferred presentment transactions made to military borrowers. 
Signed by the Governor and went into effect on 9/1/2017

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