Senate committee targets payday loans

For Cynthia Reynosa, a $ 500 payday loan allowed her to help her mother, suffering from rheumatoid arthritis, pay her high insurance deductible. But the interest she paid over the next six months was $ 1,200, more than double what she had borrowed.

“I thought I would find the money wherever I needed to find it, so she didn’t have to suffer anymore,” Reynosa said in a Senate committee hearing today.

If a series of invoices submitted by Sens. Wendy davis, D-Fort Worth and Royce West, D-Dallas, passes this session, consumers like Reynosa who take out short-term, high-interest loans could be protected. Their measures would fill a loophole in the state’s finance code, capping otherwise exorbitant interest rates.

The Office of the Consumer Credit Commissioner payday loans regulated until 2005 when lenders changed their business model to credit service organizations, or CSOs. Under the new model, the now unregulated CSOs are using third-party lenders to deliver money quickly to consumers and operate through the loophole. OCCC commissioner Leslie Pettijohn said her office had received 400 payday loan complaints in the past two years.

But Ryan Brannan, a policy analyst at Texas Public Policy Foundation, said those who take out payday loans are making informed choices and turning to CSOs because other lending organizations turn them down. “We argue that the right role is for the market to determine winners and losers, not government regulation,” he said.

Other opponents of the bill, such as ACE Cash Express President and CEO Jay Shipowitz is concerned that this will force lenders to close their stores. “We are charging a rate that we believe the market will bear based on the competitive environment in Texas,” he said.

Oregon’s ACE stores continue to operate despite an interest rate cap, Davis said. “Our communities ask us, ‘Why in Texas did you allow these lenders? What’s so special about them that they should be operating in a loophole outside the lending regulations that all other lenders have to? follow? ”, she said. “Unless and until you [work with me on that], my only alternative is to offer what I am proposing now, which is to submit to the existing loan law in the state of Texas, under which all other lenders must operate. “

Shipowitz said stores in Texas offered a loan that fell under the state’s finance code, but when store losses exceeded income, they halted sales.

Supporters of the bill and some lawmakers claim that payday loans impose high interest rates on the poor, trapping them in a cycle of debt. The Dallas City Council unanimously adopted a resolution on February 9 that called for meaningful reform of CSOs. “Getting Dallas City Council to agree on anything is a big deal,” said Councilor Jerry Allen. “There is a tidal wave. This tidal wave says we can no longer turn our backs on fair lending practices.”

Pastor Frederick Haynes of Dallas Western Friendship Baptist Church said his community was oversaturated with 20 payday and auto-title lenders within a five-mile radius in recent years.

“If someone is drowning, instead of throwing a life jacket at them, in too many cases we’ve thrown shackles on them,” Haynes said. “This is what the breakdown industry has done to too many people.