Statesman Editorial On Payday Lending Bill

Following up on last week’s article, the Statesman followed up yesterday with this editorial about my bill to regulate predatory lenders:

Closing ranks to close loophole

Editorial Board

It should be illegal for lenders to collect annual interest rates of 500 percent or more on loans made to consumers. But payday lenders in Texas are exploiting a loophole that has sent interest rates on some loans soaring. If state Reps. Tom Craddick, R-Midland, and Eddie Rodriguez, D-Austin, get their way during this legislative session and we hope they do it would be illegal to exploit those loopholes.

They have filed identical legislation to curb outrageous interest rates on short-term loans by lenders who are legally sidestepping interest rate caps by charging fees that can push annual interest rates beyond what is fair and reasonable. American-Statesman writer Laylan Copelin reported in last week’s editions that the bill by Craddick and Rodriguez would outlaw third-party fees for arranging consumer credit. Payday and auto-title lenders then would be regulated.

Craddick tells a compelling story about why he filed the bill. He was motivated by the published plight of a Midland maid who borrowed $6,300 on an auto-title loan to pay for her stepson’s funeral. When the Midland Reporter-Telegram reported in 2008 that she had paid more than $12,000 over 11 months without reducing the loan amount, that got Craddick’s attention.

Typically, the loans are short-term, about 14 to 30 days, and interest rates are capped at 10 percent. But the fees boost the annual interest rates to a ridiculous level when consumers can’t or don’t pay them off on time and have to refinance.

Copelin reported that payday lenders have flourished in Texas — Cash America Inc. of Fort Worth, ACE Cash Express of Irving and EZCorp Inc. of Austin, for example. Some states, including Ohio, Arizona, Montana and Arkansas, have either restricted such loans or eliminated them. In 2007, Congress passed restrictions on the loans that could be made to members of the military.

The Texas bill would not outlaw such loans or establish burdensome regulations. As Craddick noted, the measure would not put them out of business. Rodriguez agreed, saying that closing the loophole would still allow a high annual percentage rate — as much as 135 percent. That is more than reasonable.

But in Texas, payday lenders have a great deal of influence and have beaten back efforts at the Legislature to curb their lending practices, which drive up interest rates beyond what is reasonable or fair. It’s worth noting that Gov. Rick Perry appointed William “Bill” White, a Cash America executive, as chairman of the Texas Finance Commission, which writes lending regulations.

We urge Perry to work with his appointee to establish lending procedures that are reasonable and fair and that don’t take advantage of people in vulnerable circumstances. One would think that businesses could live with regulations that permit loans that yield an annual interest rate of 135 percent.

The Legislature should follow the example of what some are calling Texas’ odd couple, Craddick and Rodriguez. It should pass the bill. The fact that the pair are working together shows what can happen when our leaders focus more on solving problems that affect Texans than on toeing the party line. That is good government.