Good.
Legislation by Sen. Wendy Davis of Fort Worth that would cap fees and interest on loans made by payday and car title lenders was approved Thursday by the Senate Business and Commerce Committee.
The bill, which now heads to the full Senate, has strong support from a coalition of consumer and faith-based groups, who are calling for tougher regulations on the lenders. The Consumer Service Alliance of Texas, which represents lenders, opposes the proposed caps.
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Other related measures are pending in the House. Rep. Vicki Truitt, R-Keller, chairwoman of the House Pensions, Investments and Financial Services Committee, has introduced a package of three bills that would add regulations, including disclosure requirements, but would not cap fees. Rep. Tom Craddick, R-Midland, is sponsoring more stringent legislation similar to that proposed by Davis and [Se. Royce] West.
The senators’ bill would place payday and car title lenders under the same regulatory framework that governs banks and credit unions.
The bill would impose a 15 percent rate cap on fees for payday loans. It would also limit the size of the loan to 35 percent of a borrower’s gross monthly income up to a maximum of $1,240.
For auto title loans, the bill creates a tiered rate system depending on the size of the loan. Loans of up to $700 would be capped at 20 percent and the next $700 would be capped at 18 percent. Loans over $1,400 would be capped at 15 percent.
The bill would also limit the number of loan rollovers and require lenders to accept partial repayment of the principal to help keep consumers from a worsening pattern of debt. Lenders would be required to offer a repayment plan on a customers’ third consecutive loan renewal.
The Davis/West bill is SB1862. Of the other payday lending legislation that I’ve blogged about, all are still pending in committee except for Rep. Truitt’s bills, HBs 2592 and 2594, which as noted are less stringent than the other bills. Truitt’s position is in line with the payday lenders’, in that she doesn’t favor the caps or limits that other bills include. We’ll see what happens in the House to SB1862 if it passes the Senate. A statement from Sen. Davis is here.
There have been some really interesting studies done of payday lending practices. Some people fear that if this service were unavailable, that poor people who need loans (who otherwise would be unqualified for them) would be forced to turn to even more unpalatable options like loan sharks. I’m not sure how I come out on this issue, obviously poor people shouldn’t be taken advantage of, but they also need access to emergency credit.