Improved payday lending bill passes the Senate

Good news, if it goes anywhere.

The Texas Senate approved a bill to regulate short-term lenders on Monday night, a milestone some thought the chamber wouldn’t reach after a personal and divisive floor fight on Thursday.

But with the measure’s author, state Sen. John Carona, R-Dallas, calling the highly-altered bill an “ugly baby,” it remains to be seen whether the measure is viable enough to get through the House.

The bill passed with versions of the six amendments Carona brought with him to the floor last week – but seven other amendments got tacked onto the bill, including one from state Sen. Wendy Davis, D-Fort Worth, which would bring payday lenders back under the control of existing small-loan regulations.

That provision is similar to one in a bill state Rep. Tom Craddick, R-Midland, introduced, which was lauded by consumer advocates but has long been seen as politically troublesome.

Another potential poison pill comes in the form of an amendment from state Sen. John Whitmire, D-Houston, which prevents state regulation of payday lenders from preempting local regulations. Previously, the bill established a statewide minimum level of regulation and preempted local ordinances regulating short-term lenders.

The statewide regulations and preemption were welcomed by payday lenders, who were willing to negotiate certain reforms in return for the expectation that they would be operating under uniform rules. With that provision gone, it remains to be seen whether the two sides can come together to reach an agreement. Carona acknowledged as much on the Senate floor.

“This has the effect, I think,” he told Whitmire, “of perhaps not leaving us any hope of passage.”

Whitmire, for his part, seemed to doubt that the amendments would survive the House, leaving it with no hope of passage later when it returns to the Senate.

“What are the odds,” he asked, that “the House returns your bill with these amendments? This ain’t my first rodeo.”

See here, here, and here for some background. The Observer calls the bill “surprisingly tough”, and it’s certainly a pleasant surprise. The Chron adds a few more details.

Another amendment, by Sen. Rodney Ellis, D-Houston, capped annual percentage rates at 36 percent for all borrowers – the amount lenders are allowed to charge military families.

The bill prohibits lenders from extending more than one payday or auto title loan to the same borrower at one time, limits the number of times the loan could be refinanced, and mandates that lenders must permit partial payments so that borrowers can reduce the size of their loans.

Pointing out the industry’s strength, Sen. Wendy Davis, D-Fort Worth, said that there are more payday lending storefronts in Texas than Whataburger and McDonald locations. “We’ve heard many, many stories about lives that have been ruined as a consequence of this state’s failure to appropriately regulate this industry so that consumers are treated fairly,” she said.

I have to say, after all the twists and turns this bill took, I did not expect this result. Kudos to Sens. Whitmire, Ellis, and Davis for strengthening the bill, and to Sen. Carona for not standing in the way. Maybe this means the bill now has no chance of passing the House, but maybe the House will take a cue from the Senate’s insistence on passing meaningful reform. I choose to be hopeful, as foolish as that often is with the Legislature. EoW has more.

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• Payday lenders face new regulation