Floor Pass

State Rep. Mike Villarreal (D-San Antonio)

Late into the night on Monday, the payday loan industry strutted its stuff before a very friendly House committee. The hearing came just a week after the Senate passed a surprisingly tough bill that the industry insists would shut down most of Texas’ 3,400 payday and auto-title storefronts. Even though the legislation aired last night is a faint shadow of the Senate bill, it got a rough treatment from six of the seven committee members.

Only the chairman and author of the bill, Rep. Mike Villarreal (D-San Antonio) evidenced any interest in cracking down on the industry.

“I think the tone of the committee was that clearly there was no support for what Villarreal put out there, at least right now,” said Ann Baddour of Texas Appleseed.

What happens next is anyone’s guess but it is possible that payday reform is dead for the session.

The industry was apparently spooked after the Senate made its move last week.

The original version of the Senate bill “was a bill that required sacrifices for all parties but we were willing to make those sacrifices for the benefit of Texas,” said C. Dan Adams, CEO of South Carolina-based The Capital Corporation.

The lenders are now openly working to kill anything and everything except perhaps legislation that would pre-empt city ordinances regulating payday loans.

At last night’s hearing, Rep. Mike Villarreal, the Democratic chair of House Investments and Financial Services, tried to frame payday loan reform as a balancing act. “It is not just an issue that is about markets but, based on all the testimony we have heard from our constituents, is also an issue about morality,” he said.

Villarreal’s bill is considered by consumer groups to be a minimalist reform effort. The Senate version would close a loophole that allows payday and title lenders to get around Texas’ anti-usury laws and charge unlimited rates. Instead it would impose a strict 36 percent APR cap on loans, effectively scuttling the business model in Texas. The Villarreal proposal, which focuses on limiting the number of “rollovers” and imposes modest limits on the size of loans based on borrower income, has only received tepid support from consumer groups.

The committee consists of two Democrats and five Republicans, including some of the House members most hostile to regulation. Collectively, the seven have accepted almost $115,000 from payday loan interests since 2009, according to Texans for Public Justice. Committee vice-chair Dan Flynn (R-Van) has received the third most payday cash ($50,500) of any House member. Speaker Joe Straus, who makes committee appointments, has by far received the most payday donations of any official in the state, about $312,000 since 2009.

Many of those donors, and their lobbyists, were out in force last night. Former state Reps. Vicki Truitt (R-Southlake) and Burt Solomons (R-Carrollton) were spotted in the hearing room. Bill Hammond, the powerful head of the Texas Association of Business, testified against Villarreal’s bill. So did Bill Peacock of the corporate-funded think tank Texas Public Policy Foundation; Peacock testified that the only thing TPPF is in favor of is striking down city ordinances regulating payday and title lending.

Also testifying: many CEOs, owners and employees of payday and title loan companies. Lorri Davis, who is affiliated with Power Finance, a company owned by Rep. Gary Elkins (R-Houston) testified. So did Robert Reich, the CEO of Community Loans of America, a large title-loan company doing business in Texas as LoanStar Title Loan.

The industry reps must have felt like they were among friends.

“I don’t believe in loan sharks, but on the other hand I’m a little offended when someone wants to assign a morality to an issue of a business,” said Rep. Dan Flynn (R-Van).

“You don’t have to do this. You really don’t have to go get a loan if you don’t want one. … It’s a marketplace. If this industry goes away who services this market?”

Rep. Doc Anderson (R-Waco) also worried that freedom could be harmed by any regulation.

“That’s one of the good points of this product, this market,” he said. “It allows individuals to exercise their freedom.”

What happens next is impossible to predict but billions in revenues hang in the balance.

Daniel Freehan, the CEO of Cash America International, acknowledged as much on a conference call with analysts last week.

“Dozens of different scenarios could unfold at this point that run the gamut of this bill never getting out of the House committee, to a bill that passes the House in identical form of Senate Bill 1247. In between these two extremes are multiple permutations that could develop, and it’s impossible to predict how this may unfold with any reasonable degree of confidence.”

A worst-case scenario from the point of view of the reformers is legislation that would strike down city ordinances but not add any new statewide regulations. One such pre-emption only bill, House Bill 2953 by Rep. Ryan Guillen (D-Rio Grande City), is already headed to the House floor.

Last night, Rob Norcross of the Consumer Services Alliance of Texas, a group that represents 80 percent of all the payday and title storefronts in Texas, tried to play down the pre-emption issue, saying that he believed the industry would prevail in its court. But there’s no doubt that ordinances passed in Austin, Dallas, San Antonio, El Paso and Denton are cutting into profits. In January, Mark Kuchenrithe, the CFO of Austin-based EZCorp, told analysts that the company’s “profitability… was negatively impacted by over $1 million” during the last quarter of 2012 “as a result of ordinances enacted in Dallas and Austin.”

Patrick Michels

The Lead:

You know the session has gotten serious when the first major bill dies in the House on a point of order.

That’s what happened yesterday, when a major water bill that would have directed $2 billion from the rainy day fund to pay for water infrastructure projects was stopped on point of order, or procedural error, after hours of debate. As the Observer’s Forrest Wilder reports, House Democrats banded together to kill House Bill 11 with a point of order, “only because their demands to put more into Texas’ schools, and fully undo the cuts from 2011, were going unheeded.”

Last session saw $5.4 billion in cuts to public education, and Democrats saw this as their last point of leverage as a way to push for more funds for public education.

On the other side of the water debate, according to the Quorum Report (subscribers only), Gov. Rick Perry went against the Texas Public Policy Foundation—a conservative think-tank and Perry’s traditional ally—in a press conference earlier in the day to advocate using the rainy day fund to pay for the water plan.

How the House will get the water plan funded is somewhat hazy now, but the bill has a small chance to pass on to the Senate if it reaches a vote before the upcoming deadline for the House to pass House bills.

Yesterday’s Headlines:

1. The House Judiciary and Civil Jurisprudence Committee heard a bill, dubbed the “Michael Morton Act,” that would require Texas prosecutors to provide evidence to defense lawyers in criminal cases and could prevent wrongful convictions, The Texas Tribune reports. Morton spent almost 25 years behind bars after being falsely convicted of his wife’s murder in the 1980s.

2. The Austin American-Statesman reports that the House approved a bill Monday that would eliminate standardized writing tests for  fourth and seventh grades and would trim down testing in all grades. It was a voice vote, and there was no opposition.

Line of the Day:

“Here was their argument. They said: ‘Listen, before you did this, the politics of it were great. The Democrats were the bad guys. The Republicans were the good guys. Now we all look like a bunch of squishes.’ Well, there is an alternative. You could just not be a bunch of squishes.” —U.S. Sen. Ted Cruz in a video calling out Republican colleagues for joining Democrats to filibuster gun-control legislation in the U.S. Senate.

What We’re Watching Today:

1. The House will hear a sunset bill that will reinstate, for 12 more years, the Texas Commission on the Arts. The commission manages grants to Texas nonprofit arts and cultural organizations, designates cultural areas and promotes tourism.

2. The Senate Education Committee will hear a bill that would create a pilot program in the Dallas Independent School District that graduates students in three years straight into a career-preparatory program, part of a larger K-12 movement to eliminate the “four by four”—four mandated years of math and science courses—and allow for more students to filter directly into the workforce instead of taking the college path.

3. Senate Education Committee will also hear a bill that would—in light of the school finance lawsuits against the state’s unfair public ed funding system—create a report to evaluate the current funding system and how the Texas Education Agency weights each student’s needs.

Beth Cortez-Neavel

A water tower in Brownsville sports the UTB TSC logo.

Susan Mills, an English professor at the University of Texas at Brownsville/Texas Southmost College, filed a federal lawsuit last week against the university officials who fired her.

Mills claims that UTB President Juliet Garcia, Provost Alan Artibise and a former dean of the school’s College of Liberal Arts wrongfully terminated her employment as part of the university’s massive downsizing.

The two South Texas schools, UTB and TSC, are in the midst of a five-year divorce ending a partnership that began more than 20 years ago. Both schools are preparing to enroll students separately next semester, and UTB has been scaling back to prepare for fewer students. Mills is one of nearly 90 faculty members notified last spring that they would lose their jobs in May 2013.

Mills claims her tenure gives her property rights to her employment, and that the termination of her job is an unconstitutional violation of her due process rights. The Brownsville Herald first reported the suit last week. It’s apparently the first lawsuit to come out of the schools’ messy split that’s cost the jobs of almost 300 faculty and staff members.

UTB formed departmental review committees to recommend which faculty members should be laid off, based on their credentials and years of employment with the school. The lawsuit says the recommendation to lay off Mills was based upon “false assumptions” and “factual misstatements” made by Charles Dameron, a member of the English department’s review committee.

Mills appealed her termination notice to another committee, which determined in November of 2012 that Artibise’s decision to fire Mills was “arbitrary and unreasonable.” The complaint says President Garcia rejected the hearing committee’s findings, and sent Mills a final termination notice instead.

The complaint says the university’s need to make layoffs “is undercut by the reality that UT-B subsequently began hiring instructors for the English and other departments at the very same time” that it was firing Mills and other faculty. “This case illustrates the tension between faculty and top members of the UT-B administration with respect to tenure rights,” the suit says.

“Downsizing is a myth,” the complaint goes on. “If the downsizing of UT-B were a reality, UT-B would not be hiring faculty at the same time it is releasing nearly ninety faithful educators. In other words, the ‘downsizing’ excuse for honoring its tenure commitments to its professors is a ruse. The real reason is financial exigency rather than downsizing.”

Mills requested a temporary restraining order to prevent UTB from dismissing her at the end of the semester, according to the Herald, but Federal District Judge Andrew Hanen  denied Mills’ request. A pretrial hearing is set for July 23.