Deep within the bowels of the Capitol, lobbyists in expensive suits were crammed cheek by jowl for several hours in a hearing room Tuesday morning. They’re already working harder than in previous sessions for the payday lending industry that employs them. This is the first time legislation to regulate the industry has gotten a committee hearing early enough in the legislative session to actually pass.
The senators in Senate Business and Commerce heard three bills to regulate the industry by Democratic Senators Wendy Davis and Royce West. Together they represent the Fort Worth-Dallas metroplex, which has seen an influx of predatory payday lenders since the industry found a loophole in Texas law in 2005, which allows lenders to charge whatever interest rate they want.
Typically that interest rate is anywhere from 300 to 1000 APR for a loan of up to $2,000. Auto title lenders will loan up to $5,000 to $6,000, if you hand over your car title as collateral. The dirty little secret to the $40 billion a year industry’s profits is the loan rollover. More than 70 percent of borrowers can’t pay their loans and fees in the allotted two weeks. So they have to pay a fee from $60 to $1,200 to renew their loans. Typically, this fee isn’t applied to the principal. And the average borrower will roll over a loan at least five times, according to the nonprofit Center for Responsible Lending.
Business couldn’t be better. The recession is helping these lenders make record profits. Their customer base is growing every year and the traditional banking industry is dropping customers with bad credit right and left. Increasingly, the only lenders left are the predatory ones.
Fort Worth Democratic Senator Wendy Davis took up the battle to reform the industry last session after Senator Eliot Shapleigh, a democrat from El Paso retired. In 2009, Davis’ bills were heard on the last day of committee meetings. Republican Senator Troy Fraser chair of the Business & Commerce committee at the time didn’t even bother to ask for a vote.
This time around things are looking more promising. There’s a broad coalition of churches, and consumer advocacy groups, including the AARP that are advocating for reform. They just about equaled the lobbyists in number at the hearing, but not quite. The payday industry is endlessly producing astroturf (faux grassroots) groups. Back by popular demand was the Texas Coalition for Consumer Choice, which I wrote about in my 2009 “Perils of Payday” story.
Michael Price, the president of the “coalition” not surprisingly testified in favor of the payday industry. Price says he’s also a senior pastor of the Gates of Dominion Word Ministry International. He told the committee that he now has 60,000 members. (In 2009, it was 45,000). Price boiled the whole problem down to ignorant borrowers. The industry is running just fine, according to Price who told the senators he’s never had a complaint from one consumer about usurious interest rates or loan rollovers. “What could be improved is the borrower,” he offered. “They could have savings accounts and more financial literacy.”
In 2009, I noted that Price’s web site is registered under the name of Tim von Kennel, a lobbyist for the payday industry. I checked it again today and it still hasn’t changed. I’m a little disappointed that they don’t even care enough to try and mask the connection.
Another astroturf spokesperson Gerri Guzman, with the Consumer Rights Coalition, topped Mr. Price with 140,000 members in her “coalition.” The funny thing was Guzman couldn’t come up with s single suggestion on how the payday industry could more fairly serve consumers. After some grilling by Senator John Whitmire, Guzman admitted that her group was largely supported by payday lenders and the banking industry.
It wasn’t like these astroturf groups were needed. Not when the payday industry already had Republican Senators Mike Jackson and Chris Harris on the dais defending them at every turn.
Both Senators said they’d never had a single complaint from a consumer sent to their offices. (That would be approximately the pre-Jurassic era when they first started serving). Therefore, there was no problem. There’s some sound public policy making for you. When the commissioner of the Office of Consumer Credit Commissioner said she’d received 400 complaints in the last two years, Jackson scoffed. “There’s 25 million people in Texas. That’s not a very big percentage. Are we just trying to fix something just to fix it?”
Nah, the Texas Senate would never do that.
Jackson and Harris probably weren’t listening when Cynthia Reynoso testified shortly thereafter. The young woman said she’d had to borrow $500 from a payday lender to help her sick mother pay a health insurance copay. Reynoso couldn’t pay the $500 back in two weeks, so she was forced to pay a loan renewal fee several times on the loan. In the end she paid $1,200 on a $500 loan. Finally, a nonprofit intervened and helped her take out a loan to pay off the payday lender, and get her out of the mess.
The committee didn’t take a vote on the bills today. But Senator Carona, chair of the committee has told Senator Davis he’ll bring the bill up for a vote. After the hearing, Davis sounded confident that she’ll get some type of payday reform bill through the Senate. Every session an army of lobbyists makes sure these bills go nowhere. And the lobbyists were in full force at the hearing today, tapping away on their smart phones. But Davis says she’s willing to work with the lenders to try and get something acceptable to both the industry and consumer advocates.
The question is will the payday industry play ball with Senator Davis? Or will they drag their feet, hire more lobbyists and torpedo reform once again, so they can continue to suck every last drop out of Texas’ citizens. If they do, it will be the toughest fight they’ve had so far, says Davis. “It’s obvious the system is badly broken,” she said. “And a tremendous number of organizations from church groups to consumer advocacy groups are asking us to do something about it.” Davis said she’ll have a committee substitute done in the next two weeks. And that Senator Carona will bring it up for a vote. Let’s hope it happens. Texas has been the wild west of payday lending for too long.