Wednesday, February 23, 2011

Legislators already revising proposed payday lending regulations

Wednesday, Feb. 23, 2011

The powerful payday lending lobby already has Texas senators reworking proposed legislation that would regulate what has become a lender of last resort for many Texans.

Several lawmakers, led by state Sen. Wendy Davis, a Fort Worth Democrat, have filed bills that would prohibit payday lenders and auto title lenders in Texas from sidestepping interest rate caps by charging fees that, in some instances, can push the effective annual percentage rates on short-term loans above 500 percent.

Texas is one of a half-dozen states that don't regulate payday or auto-title loans. In 2009, similar legislation to regulate the industry died in the Legislature without a floor vote.

At Tuesday's legislative hearing, the first on the issue this year, Davis said she would rework her bill so it would regulate payday lenders for the first time, but also would create a special interest rate for the industry.

"I'm willing to negotiate a unique rate structure," Davis said during a break in Tuesday's hearing.

Payday lenders such as Cash America Inc. of Fort Worth, ACE Cash Express of Irving and EZcorp Inc. of Austin partner with banks, which make short-term loans. The industry uses brokers in neighborhood storefronts to take loan applications, review the applicant's credit and collect payments. The stores are typically located in lower-income areas, including along East Seventh Street and East Riverside Drive in Austin.

The fees that the broker charges are not considered interest under state law.

If customers cannot repay short-term loans on time, they can "roll," or extend, the note by paying more fees, running up the high annual percentage rates.

"We're constantly rolling these people," said Sen. Royce West , a Dallas Democrat who has proposed a bill similar to Davis'.

At Tuesday's hearing, however, the industry matched the bills' supporters, with witnesses including consumers, pastors and experts.

"If this bill is passed, we will be forced to shut our stores down in Texas," said Jay Shipowitz, president of ACE Cash Express. ACE has 500 payday lending offices in Texas, including eight in Central Texas.

Gerri Guzman , executive director of the Washington-based Consumer Rights Coalition , an industry-backed group, testified that the legislation would eradicate an industry that serves consumers who can't get short-term loans at banks or credit unions.

"These people are underbanked," she said. "If this passes, consumers will be left without an important credit option."

Michael Price of Austin and Frederick Haynes III of Dallas are pastors on opposite sides of the issue.

Price said the industry financially supports his organization, Texas Coalition for Consumer Choice, which promotes personal responsibility and consumer freedom.

He testified that short-term loan rates can be less than fees for bounced checks or penalties for paying utility bills late.

Senators asked him whether it was fair for consumers to pay $1,200 in fees on a $500 loan, as a Houston woman testified about earlier in the day.

"It depends whether she was informed on her decision," he said.

Haynes said his church and three others have organized because "the community is saturated" with payday lenders.

"We are concerned why our community has been targeted," he said.

Haynes said payday loans are harmful to his church members: "Instead of throwing them a lifeline, we're throwing them shackles."

Sen. Chris Harris, R-Arlington, said he had received only two complaints about payday loans over the past decade.

Sen. Mike Jackson, R-La Porte, echoed that sentiment.

"I'm wondering if we're trying to fix something just to fix it," Jackson said. "If there is a huge problem out here, I'm having a hard time finding them."

Davis said that payday loan documents do not tell consumers where they can complain because the industry is not regulated.

She said she's not interested in putting payday lenders out of business. But she complained that industry officials would not tell her what fee cap would allow them to make a profit and stay in Texas.

The legislation was left pending in the Senate Committee on Business and Commerce while Davis and others rework the bill.

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