Among other things, Carona’s proposal would limit the maximum size of loans to a percentage of the borrower’s monthly income and cap the number of times a borrower could roll over outstanding loans.
The initial version of the bill elicited measured praise from consumer groups. But that support has eroded amid concerns that the bill’s consumer protections have been watered down and that key provisions have been replaced by language favored by industry trade groups.
“It’s been pretty touch-and-go for the past couple of weeks,” said Don Baylor, a senior policy analyst at the Center for Public Policy Priorities, an Austin-based liberal think tank, who is involved in negotiations to reinstate consumer protections in the measure.
“The last version that was in the committee has caused a lot of the consumer groups to pull back,” Baylor said. “A lot of the industry actually testified in support of the bill.”
During the current legislative session, lawmakers proposed additional regulations. Former House speaker, state Rep. Tom Craddick, R-Midland, filed a measure that would extend already existing rules for small loans to the auto title and payday lending business.
Most of payday lending bills, so far, have been left pending in committee, but SB 1247 has received the lion’s share of attention from both reformers and the industry.
Last week, a new version of the bill appeared that consumer advocates argue weakened many of the consumer protections.
In the original bill, a payday loan taken on within five days of a previous loan was considered refinancing – a rule intended to prevent borrowers from rolling over their loans ad infinitum, paying more fees and interest.
Consumer activists wanted a period of seven days, but the revised bill would reduce the required gap to two days.
In the original bill, the size of some payday loans was capped at 15 percent of monthly income for those making less than $28,000 a year, and 20 percent for those making more. In the new version of the bill, those limits are set at 30 percent and 40 percent, respectively.
Baylor said the new monthly limits simply explicitly allow current practices.
“It’s kind of akin to putting a 75 mile-per-hour speed limit on a residential road,” he said. “You can say it’s a limit, but it’s not going to make anybody safer.”
Complicating matters, the new state regulations would trump city ordinances that regulate short-term lending. Since 2011, several Texas cities, including Austin, Dallas, San Antonio and El Paso, have passed regulations that are more restrictive than the current version of SB 1247. If the bill passes, restrictions on payday lending would be relaxed in such areas.
As I said before, no bill is preferable to a bad bill, and any bill that undoes the ordinances some cities have adopted to regulate payday lenders is unacceptable. If waiting till next session to try again is the best option, then that’s what we should do.