Why Payday & Auto Title Lending Legislation Is A Good Deal

Today CPPP sent an open letter to the Texas Senate supporting SB 1247, which would protect consumers from excessive fees totaling between $260 and $440 million over the upcoming biennium. Here’s why we are for SB 1247:

  1. Half a loaf is better than none, particularly a $400 million loaf. SB 1247 limits the industry to only four loan products with product-specific limitations on loan sizes, loan terms, refinances, and fees. The bill also closes at least seven loopholes and includes innovative/national model provisions such as unique protections for military borrowers. Finally, the bill would curtail about one million refinance fees (nearly a quarter of all refinances), saving consumers from $132 to $221 million in excessive fees per year. Under current practice, payday and auto title lenders, also known as credit access businesses (CABs), have a license to offer any and every product, without any limits on the amount of the loan, without any limits on refinances, without any underwriting, and without any limits on loan terms. Because of its ambiguity, the 180-day limitation in current law is meaningless. Right now we see auto-title loans up to 2 years. Other regulated installment lenders can offer loans up to 65 months. SB 1247, while not all we want, is progress.
  2. Consumers won important concessions from business in this bill. Hey, this is Texas. Legislation is going to start pro-business. In SB 1247, however, consumers won important concessions. If we compare this bill to the industry standard as set out in business’ proposed model legislation, this bill goes considerably toward the consumer’s direction on several important points. For example, the bill would give the Office of Consumer Credit Commissioner (OCCC) expanded rulemaking authority that provides much stricter regulatory oversight than initially proposed by the industry.
  3. Fee limits are not achievable, but SB 1247 makes progress. We too would like to see fee limits, but an actual fee or annual percentage rate cap was never in the cards this session, and another consumer loss this session will hamper future efforts. We have no fee limits whatsoever on these installment payments today either, but SB 1247 does limit the amount of payments for the two installment products (payday, auto title). As a percentage of monthly income, these payments must be inclusive of fees, principal, and interest. This provision recognizes that fee cost must be part of the equation if we can attack the cycle of debt.
  4. When it comes to regulating consumer lending, local ordinances won’t work. Over the past two years, Dallas, Austin, and some other cities have passed local ordinances to regulate transactions. But many more cities have not. Patchwork regulation won’t work because many cities will pass no regulations or weak regulations. Cities also lack the muscle to enforce their regulations. And whether the Texas Supreme Court will uphold local regulations is very uncertain. If we are serious about producing actual results for consumers, we need a statewide solution instead of an uncertain and ineffective patchwork of local attempts. Whoever controls licensure should control regulation, and that means regulation should be at the state level with OCCC.
  5. To protect low-income consumers, we need to act responsibly. To paraphrase Martin Luther King, Jr., some decisions boil down to whether you want to be pure or whether you want to be responsible. When it comes to making sacrifices for ourselves, we can choose to be pure. When it comes to asking other people to sacrifice, we need to be responsible. Low-income consumers need the protection of SB 1247 now. They can’t afford to wait a decade for the perfect bill. Consumers using these lending products are completely exposed to the whims of an unregulated free market and have neither front-end nor back-end protections from the cycle of debt. We should act responsibility to deliver results to over 330,000 consumers that could have protections where they have none today. The chance to do something positive may not come around again for a decade. Let’s act now to protect low-income consumers.

If your organization is interested in supporting SB 1247, please contact Senator Carona (512.463.0365) and your state Senator to let them know.

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