By David Pilley on June 14, 2011
.jpg.aspx?width=75&height=75) One of the dangerous things about payday loans is that they seem tempting. Lenders might advertise them as being a solution to a long-term problem, when in reality they only help out in the short run. The initial principal on a payday loan may be just a few hundred dollars, but the amount in interest can end up being thousands if you fail to pay it back within a few months. Recent legislature in Texas is cracking down on payday loans in order to prevent people from getting stuck in a revolving door of debt.
A package of three bills (HB2592, HB2593, and HB2594) was approved by the Texas House of Representatives this past Thursday. Sponsored by Rep. Vicki Truitt (a Republican from the city of Keller), the bills will require payday lenders to meet stricter standards of transparency, letting customers know exactly what is being offered. HB2592 deals with customer disclosure, requiring payday lenders to post interest rates, fees, and terms of service. Payday lenders must also tell their customers that these loans are meant to meet short-term needs and are not solutions to long-term debt issues. HB2593 will limit the number of times a loan can be renewed by payday lenders. HB2594 will license credit access businesses with the Consumer Credit Commissioner. It will also set licensing fees and bonding requirements, and the credit commissioner may revokes licenses if these requirements are violated.
Truitt testified at a February hearing in front of the Senate Business and Commerce Committee. She stressed the need for middle ground, arguing for some, but not too much, regulation. “Regulating too heavily will put [payday lenders] out of business, costing thousands of jobs and leaving an undesirable vacuum in the market. That’s unacceptable. Leaving them unregulated will expose too many citizens to rogue actors in the industry. That's also unacceptable.” This legislation also deals with car title lenders, and by placing payday and title lenders under supervision of the Consumer Credit Commissioner, Truitt hopes unethical lenders will be identified and punished. The legislation will also deny an application to lenders with a criminal record or whose licenses have been revoked in other states.
The legislation does not come without some opposition. Rep. Gary Elkins (a Republican from Houston who is also a payday lender) declared the bill to be “nothing more than an expansion of government to try to solve a problem that just doesn't exist.” Truitt does not want her bills to eradicate payday lending from the state of Texas, but she is hoping it will “get the rogue actors out” in order to lessen the number of “horror stories” involving fellow Texans. The proposed bills passed in the state senate and now go to governor Rick Perry.
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