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What we missed by not getting a payday lending bill

Better Texas Blog reminds us of what could have been

SB 1247, the omnibus reform bill filed by Sen. John Carona … included the ability to repay standards, loan limits, and refinance limitations, among numerous other provisions. According to the Office of Consumer Credit Commissioner (OCCC), the refinance limitations alone in SB 1247 would have produced annual savings more than $130 million for more than 300,000 Texas consumers.

Unlike other consumer loan products offered in Texas, the Finance Code contains no payday loan regulation relating to loan fees or effective annual interest rates, loan amounts, maximum number of refinances per loan, loan terms[i], ability to repay or underwriting and type of product. At least for payday loans, the absence of any statewide regulation or consumer protection makes Texas an outlier compared to nearly every state that permits or authorizes payday lending. Only five other states do not cap the amount of fees payday lenders can charge (Delaware, Idaho, Nevada, Ohio and South Dakota).[ii] Even among these states however, Delaware and Nevada have limits on loan terms and all five states limit loan amounts. [iii]

recent analysis of payday lending conducted by the Consumer Financial Protection Bureau (CFPB), which covers a majority of the U.S. storefront payday loan transactions over a 12-month period, found that 68 percent of payday loan consumers had annual incomes at or below $30,000, and 43 percent had annual incomes at or below $20,000. The median annual income of payday loan consumers was about $22,500; for borrowers making under $20,000, the most common income sources were “public assistance/benefits” and “retirement”.

The CFPB analysis also found that the average payday loan amount nationwide was $392 in 2012. Nationwide data on payday lending appear to be much better than comparable data from unregulated Texas payday lenders, which reveal that Texas borrowers pay much higher fees and loan amounts. Based on 2012 data from OCCC, the average single payment payday loan in Texas was $472.

SB 1247 also included limits on refinances for each loan product, generating a pathway out of debt for consumers who get into trouble with payday or auto title loans. For 2012, single payment payday loans alone comprised about 75 percent of all payday loans, while single payment auto title loans accounted for 83% of all auto title loans.[iv] The original loan amounts of single payment payday loans surpassed $1 billion, while loan refinancing nearly hit $2.1 billion. Over 70 percent of single payment payday loan consumers that refinanced their loan did so multiple times. As shown by the CFPB report, repeat borrowing and renewals represent the lion’s share of all loan volume.   On-time repayment is the exception, with three refinances for every loan paid in full on the original due date.

The good news and the bad news is that city ordinances are still in effect. It’s good news because we almost got an bill that did little more than nullify the city ordinances, and it’s bad because city ordinances only cover a portion of the state. Given what Mayor Parker has said, we will likely be able to add Houston to the list of cities that offer this protection. But until we have a real statewide law, it only means so much.

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2 Comments

  1. Ross says:

    The bill should have nullified the city ordinances. This is the type of business that ought to be regulated by the State, rather than a hodge podge of city ordinances. I also don’t think the City of Houston has the competence to enforce lending laws.

    Now, I do believe that payday/title lenders are scum, and need to be regulated, I just don’t think cities are the appropriate entities.

  2. joshua ben bullard says:

    what about people making their own decision for them selves,we all know pay day loans arent cheap-ross-they are short term loans,people of texas dont need any hand holding from you ross or anybody else when it comes to their individuall finances.besides, name me one time youve ever witnessed a protest from the consumers with signs that read “stop the pay day lending ,regulate’em before i borrow to much money” texas is able to self regulate,goverment doesnt belong in peoples freedom to borrow and loan money between each other=every pay day loan company spells it out loud and clear exactly what youll have to pay back.ross,youve come along way but you may want to move up to the front=so u can see the board.

    (payday loans in texas joshua ben bullard)

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