Last week, meaningful payday and auto title reform turned to mush as industry interests reneged and rewrote the legislation to strip out many of the basic protections included in the original SB 1247. This bill, which would preempt local action to control these unaffordable transactions, is stuck in the Senate Business & Commerce Committee after the industry scored a 9-0 shutout vote by weakening the bill on at least nine specific provisions. As a result, the bill currently has only industry support but no backing from consumer groups. As Sen. John Carona mentioned in last week’s hearing, the industry “has amassed enormous political support in the Capitol . . .even though they take enormous advantage of . . . [Texas] consumers.”
The most important change from the original bill relates directly to our Better Texas Family Budgets (www.familybudgets.org), which shows what it really takes for families to make ends meet in Texas. The original bill would have allowed a multi-payment payday loan—say, a six-month loan with a total of 12 payments at 650 percent APR—to include total monthly payments of no more than 20 percent of a borrower’s gross monthly income. Still a lot, but typically less than a family’s housing costs. Under the committee substitute version, that maximum payment soared up to 40 percent of a borrower’s gross monthly income. With this absurd standard, monthly loan payments could exceed their total monthly expenses for housing, transportation, and one week’s groceries. For a teacher earning just over $40,000 in Longview, her monthly payments could be as high as $1,500 per month, and for six straight months—the ultimate family budget buster.
We believe that Texas can do better by making these loans more affordable and maintaining credit access. High cost payday and auto title lending drains the financial resources from communities and working families. Last year alone, the industry, or credit access businesses (CABs), repossessed over 35,000 vehicles and milked over $1 billion in fees and interest from seniors, military, and hard-working Texans. As we wrote in the Hidden Costs of Payday Lending, local communities, bearing the brunt of high cost lending, were far ahead of the Texas Legislature in taking meaningful action to tackle the problem.
Just last week, the City of Denton joined El Paso, San Antonio, Austin, and Dallas in passing a municipal ordinance to increase borrower and lender success in the marketplace by limiting payments to a reasonable share of a borrower’s gross monthly income, among other guidelines. Several others, including Amarillo recently, have passed resolutions calling on the Legislature to enact meaningful reform.
During our testimony last week before the Senate Business & Commerce committee, we compared the industry-favored loan guidelines to putting a 75 mph speed limit on a residential road. While it is a limit, no one can argue this will make anyone safer on that street. With the current version, most Texas consumers won’t be better off. They would continue to get run over by CABs.
The following changes need to be made to the bill in order to stop the cycle of debt and increase consumer success:
- Define refinance as a loan within 7 days of the previous loan transaction.
- Include fees, principal and interest in the loan amount limitations for single payment loans.
- Restrict the total monthly payment amount for all multi-payment loans to 10% of the borrower’s gross monthly income for the lower income threshold.
- Limit multiple payment loans to 180 days with no refinances
If your community and clients are negatively impacted by payday and auto title loans, then call your Senators and tell them to only support meaningful reform that includes these four provisions.