payday lending 1-pgr 2012.1
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TexasImpactwasestablishedbyTexasreligiousleadersin1973tobeavoiceintheTexas
legislativeprocessforthesharedreligioussocialconcernsofTexas’faithcommunities.Texas
Impactissupportedbymorethantwo-dozenChristian,JewishandMuslimdenominational
bodies,hundredsoflocalcongregations,ministerialalliancesandinterfaithnetworks,and
thousandsofpeopleoffaiththroughoutTexas.
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Payday Lending Progress in Texas
Currently, almost all payday and auto title lenders operate in a loophole in state law that sets no limits on the rates
and fees they can charge Texans on small dollar, short term loans. It is common for the rates and fees charged to bethe equivalent of 500% APR. These high cost loans hurt Texas families. In 2011 lawmakers established a basic
regulatory framework for short-term lenders; now lawmakers should focus on ending the cycle of debt.
What is a payday loan? Payday loans are small, short-term loans made by
lenders at extremely high interest rates. Typically, a borrower writes a personal check for $100-$300, plusa fee, payable to the lender. The lender agrees hold
onto the check until the borrower's next payday,
usually two weeks later, only then will the check bedeposited. In return, the borrower gets cash
immediately. The fees for payday loans are extremelyhigh: up to $20 for every $100 borrowed. The interest
rates for such transactions can be as high as 500% for a two-week loan.
People who have difficulty paying back these loans
can rollover the loan by writing a new check that addson the same fee. While these loans are supposed to be
used on an emergency basis, the average customer
makes eleven transactions a year, creating cycles of debt. These predatory loan operators entice desperatecustomers with the promise of “easy credit” only to
pull them into a cycle of debt that drains money awayfrom family necessities and from the local economy.
Texas faith communities are front-line witnesses to
the pain and suffering caused by such financial ruin,and it is to our ministries that those in debt often look
for aid. Loans made without regard for the ability of the borrower to pay them back are detrimental to the
financial wellbeing of people in need of short termfinancial help.
Are there alternatives?
Yes, churches are often a source in emergencysituations. In addition, many credit unions are
stepping up to provide small-dollar loan products. InSeptember 2010, the National Credit Union
Administration launched a program that offers loansthat are similar to payday loans, at better terms for
borrowers.
How has the Legislature responded so far? During the 82
ndLegislative Session, legislators passed
HB 2592 and HB 2594 (Representative Truitt, R-Fort
Worth). These bills create a new regulatory structurefor payday and auto title lenders. HB 2592 creates animportant disclosure of rates to consumers, and HB
2594 creates a registration for lenders with the Officeof Consumer Credit Commissioner.
What should the Legislature do in 2013?
Texas needs safeguards to prevent people from
becoming trapped in cycles of debt. These measures
could include:
Capping fees on short-term loans
Creating mandatory default installment plans
The state should encourage sound financial practicesthat help people in need gain security and self-
sufficiency. Fair lending laws are good for all Texans
Texas Faith for Fair Lending is a grassroots effort by peoplof faith to change payday and auto title lending practices in
Texas. Find out more at www.texasfaithforfairlending.org
$300 loan made
on May 5th Date
Fees & Interest
Charged
Total amount
paid
Original Loan5/19/2012(2 weeks) $61.06 $361.06
2nd
Loan 5/26/2012(4 weeks) $61.06 $422.12
3rd
Loan6/9/201(6 weeks) $61.06 $483.18
4th
Loan6/23/2012(8 weeks) $61.06 $544.24
5th Loan7/7/2012(10 weeks) $61.06 $605.30
6th
Loan7/21/2012(12 weeks) $61.06 $666.36
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