Payday and Auto Title Lending in Texas: Time to Close the Loophole and Level the Playing Field
Content
Payday and Auto Title Lending in Texas
me to Close the Loophole and Level th Playing Field
The Texas Constitution
•
ARTICLE 16. GENERAL PROVISIONS
Sec. 11. USURY; RATE OF INTEREST IN ABSENCE OF LEGISLATION.
•
The Legislature shall have authority to define interest and fix maximum rates of interest; provided, however, in the
absence of legislation fixing maximum rates of interest all contracts for a greater rate of interest than ten per centum (10%) per annum shall be deemed usurious; provided,
further, that in contracts where no rate of interest is agreed upon, the rate shall not exceed six per centum (6%) per annum.
Texas Finance Code
•
TITLE 4. REGULATION OF INTEREST, LOANS AND FINANCED TRANSACTIONS, SUBTITLE B – CHAPTER 342: CONSUMER LOANS Sec. 342.007. DEFERRED PRESENTMENT TRANSACTION Passed in 2001
•
•
Office of Consumer Credit Commissioner
• • •
Governed by the Finance Commission of Texas Sets interest rates and fees Regulates the market by • • • •
Licensing Lenders Enforcing Texas Law Educating Consumers and Credit Providers Communicating Among the Industry and Public
A History of Loopholes
•
Prior to 2005, payday lenders in Texas partnered with banks from other states in order to avoid Texas usury laws.
•
When that loophole was closed by federal action, the industry found a new loophole in order to avoid the regulations contained in the Texas Finance Code.
Credit Services Organization
393 – CREDIT SERVICES ORGANIZATIONS
XAS FINANCE CODE, TITLE F FINANCIAL SERVICES
5: PROTECTION OF CONSUME
APTER
) "Credit services organization" means a person who provides… the following services with respect to the extension of consumer edit by others:
) improving a consumer's credit history or rating;
B) obtaining an extension of consumer credit for a consumer
) providing advice or assistance to a consumer with regard to Paragraph (A ).
ed in 1997 and intended to regulate organizations that help duals repair or improve credit.
How the loophole works
CSO or Payday Lender
Who gets the money out of $361.06
The CSO Act sets limit on rates and fe
$60.00
Borrower
Financial Institution
The Debt Trap
Date 4/25/2010 (2 weeks) 5/9/2010 (4 weeks) 5/23/2010 (6 weeks) 6/6/2010 (8 weeks) 6/20/2010 (10 weeks) 7/7/2010 $61.06 $61.06 $61.06 $61.06 $61.06
300 Payday an made on April 12th
Fees and Interest Charged Amount Du
$361.06 $422.12
1 Rollover
2 Rollover
$483.18
3 Rollover
$544.24
4 Rollover
$605.30
nnual Percentage Rate
529%
ar Title Loan Repayme
Date 4/21/2010 5/21/2010 6/20/2010 7/20/2010 8/19/2010 $1,269 $1,269 $1,269 $1,269 $1,269
4,000 Autole loan made March 22nd
Fees and Interest Charged Amount D
$5,269
1 Rollover
$6,538
2 Rollover
$7,807
3 Rollover
$9,076
4 Rollover
$10,34
APR =
380%
Expansion in Texas
Numbers & Graph (Ann B. will finish) In 2006 - 1,279 CSOs registered in Texas. In 2010 - over 3,594 registered.
That’s more locations than McDonalds and Whataburger combined.
District Specific Info
•
Average number of CSO locations per House district = 21.7 Highest Number 45 Rep. Hochberg, the smallest geographic district in the state. MAPPING for All House and Senate Districts
•
•
•
Example:http://www.communitywalk.com/arlington/ http://www.communitywalk.com/arlington/ tx/house_94_patrick/map/555986
Local Action
Zoning Ordinances
Irving Richardson Little Elm Garland Mesquite Sachse San Antonio Brownsville
solutions
nsville nd ardson se Antonio se so ett s County r County ian Basis Regional Council
Bills that Close the CSO Loophole & Level the Playing Field
HOUSE SENATE
10 by Rep. Tom Craddick
•SB 253 by Sen. Wendy Da
56 by Rep. Joe Farias
•SB 251 by Sen. Royce We
61 by Rep. Eddie Rodriguez
hapter 342 vs. CSO Loophol
Payday Loans
Existing Lending Law $15.60 135% (14-day term) CSO Loophole
Car Title Loans
Existing Lending Law $22.00 89% (30-day term) Car Title Yes
CSO Looph
e Charges 00 loan)
$60.00 521% (14-day term) day
$75.00
304% (30-day ter
eral
Post-Dated Check Post-Dated Check Dated Yes No $100 per
Car Title No
ght
aid to State
$100 pe
rotecting Military Familie
Congress passed, and Pres.George W. Bush signed in to law, new regulatio hen lending to members of the armed forces and their immediate family. Tex Fair Lending and the 500% Interest is Wrong Coalition support efforts to ins federal law is enforced in Texas.
B 254 by Sen. Wendy Davis
Best Legislative Approach
Previous legislative attempts at regulation • created a new regulatory scheme, including rates and fees, duplicating what is already in the Texas Finance Code. • expressly exempted CSOs from the newly created regulations • Did not include regulations for auto title lenders
Bottom Line: Until we close the CSO loophole, : payday and car title lenders will be able to continue to avoid necessary consumer protections. The bills referenced today ARE the compromise.
Scripture and Interest: hat our Faith Traditions Teach
ebrew scriptures: “If you lend money to my people, to the poor among you, you sh ot deal with them as a creditor; you shall not exact interest from em.” (Exodus 22:25)
hristian scriptures: Luke 6:34 And if you lend to those from whom you expect to ceive, what credit is that to you? Even sinners lend to sinners, to ack the same amount.
lamic scriptures: “And what you give in interest that it may increase on other eople's wealth, increases not with Allah (God).” (Q'uran 30:39)
Coalition Members
Web Resources
w.stoppaydayabuse.org
www.texasfaithforfairlendin
me to Close the Loophole and Level th Playing Field
The Texas Constitution
•
ARTICLE 16. GENERAL PROVISIONS
Sec. 11. USURY; RATE OF INTEREST IN ABSENCE OF LEGISLATION.
•
The Legislature shall have authority to define interest and fix maximum rates of interest; provided, however, in the
absence of legislation fixing maximum rates of interest all contracts for a greater rate of interest than ten per centum (10%) per annum shall be deemed usurious; provided,
further, that in contracts where no rate of interest is agreed upon, the rate shall not exceed six per centum (6%) per annum.
Texas Finance Code
•
TITLE 4. REGULATION OF INTEREST, LOANS AND FINANCED TRANSACTIONS, SUBTITLE B – CHAPTER 342: CONSUMER LOANS Sec. 342.007. DEFERRED PRESENTMENT TRANSACTION Passed in 2001
•
•
Office of Consumer Credit Commissioner
• • •
Governed by the Finance Commission of Texas Sets interest rates and fees Regulates the market by • • • •
Licensing Lenders Enforcing Texas Law Educating Consumers and Credit Providers Communicating Among the Industry and Public
A History of Loopholes
•
Prior to 2005, payday lenders in Texas partnered with banks from other states in order to avoid Texas usury laws.
•
When that loophole was closed by federal action, the industry found a new loophole in order to avoid the regulations contained in the Texas Finance Code.
Credit Services Organization
393 – CREDIT SERVICES ORGANIZATIONS
XAS FINANCE CODE, TITLE F FINANCIAL SERVICES
5: PROTECTION OF CONSUME
APTER
) "Credit services organization" means a person who provides… the following services with respect to the extension of consumer edit by others:
) improving a consumer's credit history or rating;
B) obtaining an extension of consumer credit for a consumer
) providing advice or assistance to a consumer with regard to Paragraph (A ).
ed in 1997 and intended to regulate organizations that help duals repair or improve credit.
How the loophole works
CSO or Payday Lender
Who gets the money out of $361.06
The CSO Act sets limit on rates and fe
$60.00
Borrower
Financial Institution
The Debt Trap
Date 4/25/2010 (2 weeks) 5/9/2010 (4 weeks) 5/23/2010 (6 weeks) 6/6/2010 (8 weeks) 6/20/2010 (10 weeks) 7/7/2010 $61.06 $61.06 $61.06 $61.06 $61.06
300 Payday an made on April 12th
Fees and Interest Charged Amount Du
$361.06 $422.12
1 Rollover
2 Rollover
$483.18
3 Rollover
$544.24
4 Rollover
$605.30
nnual Percentage Rate
529%
ar Title Loan Repayme
Date 4/21/2010 5/21/2010 6/20/2010 7/20/2010 8/19/2010 $1,269 $1,269 $1,269 $1,269 $1,269
4,000 Autole loan made March 22nd
Fees and Interest Charged Amount D
$5,269
1 Rollover
$6,538
2 Rollover
$7,807
3 Rollover
$9,076
4 Rollover
$10,34
APR =
380%
Expansion in Texas
Numbers & Graph (Ann B. will finish) In 2006 - 1,279 CSOs registered in Texas. In 2010 - over 3,594 registered.
That’s more locations than McDonalds and Whataburger combined.
District Specific Info
•
Average number of CSO locations per House district = 21.7 Highest Number 45 Rep. Hochberg, the smallest geographic district in the state. MAPPING for All House and Senate Districts
•
•
•
Example:http://www.communitywalk.com/arlington/ http://www.communitywalk.com/arlington/ tx/house_94_patrick/map/555986
Local Action
Zoning Ordinances
Irving Richardson Little Elm Garland Mesquite Sachse San Antonio Brownsville
solutions
nsville nd ardson se Antonio se so ett s County r County ian Basis Regional Council
Bills that Close the CSO Loophole & Level the Playing Field
HOUSE SENATE
10 by Rep. Tom Craddick
•SB 253 by Sen. Wendy Da
56 by Rep. Joe Farias
•SB 251 by Sen. Royce We
61 by Rep. Eddie Rodriguez
hapter 342 vs. CSO Loophol
Payday Loans
Existing Lending Law $15.60 135% (14-day term) CSO Loophole
Car Title Loans
Existing Lending Law $22.00 89% (30-day term) Car Title Yes
CSO Looph
e Charges 00 loan)
$60.00 521% (14-day term) day
$75.00
304% (30-day ter
eral
Post-Dated Check Post-Dated Check Dated Yes No $100 per
Car Title No
ght
aid to State
$100 pe
rotecting Military Familie
Congress passed, and Pres.George W. Bush signed in to law, new regulatio hen lending to members of the armed forces and their immediate family. Tex Fair Lending and the 500% Interest is Wrong Coalition support efforts to ins federal law is enforced in Texas.
B 254 by Sen. Wendy Davis
Best Legislative Approach
Previous legislative attempts at regulation • created a new regulatory scheme, including rates and fees, duplicating what is already in the Texas Finance Code. • expressly exempted CSOs from the newly created regulations • Did not include regulations for auto title lenders
Bottom Line: Until we close the CSO loophole, : payday and car title lenders will be able to continue to avoid necessary consumer protections. The bills referenced today ARE the compromise.
Scripture and Interest: hat our Faith Traditions Teach
ebrew scriptures: “If you lend money to my people, to the poor among you, you sh ot deal with them as a creditor; you shall not exact interest from em.” (Exodus 22:25)
hristian scriptures: Luke 6:34 And if you lend to those from whom you expect to ceive, what credit is that to you? Even sinners lend to sinners, to ack the same amount.
lamic scriptures: “And what you give in interest that it may increase on other eople's wealth, increases not with Allah (God).” (Q'uran 30:39)
Coalition Members
Web Resources
w.stoppaydayabuse.org
www.texasfaithforfairlendin
