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The Texas Observer DOUBLE ISSUE A Journal of Free Voices A Window to The South 50c t Legislators Approve Banks’ 17.5% Austin Nothing evoked such oratory or better displayed the interplay of special interests in the legislature this year than the bill the members passed which legalizes 17.5% interest and other charges on installment loans up to $1500. The terms of the measure are easy to understand. The rates and charges apply to all banks and savings and loan associations, as well as to lending companies regulated by the banking commissioner. They do not apply to loan companies regulated by the loan commissioner, most pertinently meaning that Household Finance, Texas Consumer Finance, and similar companies are not included. Installment loans are repaid in equal periodic installments. Since the borrower does not have the sum of the loan for its duration but is repaying part of it periodically, he is getting the use of about half as much money as he is borrowing on the face of the loan. The new interest rates authorized by the legislature on installment loans are stated as “add-on charges”; they are collected in advance. An add-on charge of $9 is allowed for each $100 of an installment loan. This, all agree, is about 17.47% simple interest. For loans from $1500 to $5,000, an add-on charge of $7.50 for each $100 is allowed. This; all agree, is about 14% simple interest. In addition, the legislature legalized these extra charges “for costs actually incurred” \(specifically providing they Fees for filing, recording, or releasing in any public office any instrument securing a loan ; “reasonable costs” actually spent repossessing, storing, or selling any security; lien or title transfer fees on any vehicle used as loan security; the cost of recording any lien used as loan security; costs of any abstract or attorney’s opinion ; and “other identifiable costs actually incurred in connection with the making of a loan, and paid to third parties, of the same nature and types as those described herein.” Austin Report has computed that “a rate cross” occurs at $500 between the rates authorized under the regulatory loan act of 1963 and the 1965 act, “so the bankers, savings and loan associations, and big lenders will draw more interest between $500 and $1,500 than the ‘loan sharks.’ ” Under the provision allowing multiple loans up to a total of $5,000, a married couple could make five $1,000 loans “which would ultimately cost some $8,000,” A.R. Said. The large consumer finance companies can charge, under the 1963 law, 37% on loans up to $1,500, but cannot charge more than 10% on loans larger than that. Thus the 1965 law also gives banks and savings and loan institutions a higher legal rate on loans from $1,500 to $5,000 than consumer finance companies are permitted. ORATORICAL P Y R O T E C H-NICS were the first device used Houseside by opponents of this bill. Rep. David Finney, Fort Worth, accused labor of collusion with loan sharks for opposing one of the bankers’ bills but not another version of it. Everyone, perhaps including Finney, knew this was far-fetched; labor soon enough opposed the bill Finney had asked about, too. Rep. DOTI Garrison, Houston, chairman of the House banks committee, stalled hearings on the bill, and he took the House microphone to speak about “legal fees” he said he had heard about in connection with the bill. He never named names. As the session neared its conclusion, Garrison told the House that there was “much whispering” about a list of all members of the House who had bank loans outstanding.. “The implication is, ‘Buddy, if you don’t [vote for the 17.5% bill], your loan will be called in the morning before the bank opens.’ ” Rep. Maurice Doke, Wichita Falls, a strong supporter of the higher interest bill, responded, “I am for the bill, but I own no bank stock and I do owe money to several banks.” He called for proof of the charge. When Garrison left the mike, several dozen House members swarmed after him, apparently thinking he had a list; Garrison told the Observer later, “they wanted to see if they had their names on it.” He had no list; he said he had just wondered why opponents of the bill had been working the members on the basis of a “selective list” of them. “We must have touched a nerve,” he said. A state senator exploded to a representative, in the presence of the Observer, about the 17.5% bill, “I never woulda voted for it in the first place if I didn’t owe $5,000 to the goddam bank.” We do not give his name, and we have changed the sum he mentioned; it was higher. The final front-mike blast preparatory to the showdown came from Rep. Ben Lewis, independent conservative from Dallas. He said the bankers’ bill increased interest on bank loans “from 6% to 18%” and “tightens the noose around the borrower’s neck.” He blamed “a few greedy bankers” who were giving the other bankers a bad name. “I simply will not vote to strap 18% interest rates on the working men of this state, on the farmer purchasing his farm equipment, on the home owner repairing a leaky roof or adding a bath, or on the parent seeking low-cost funds to send his children to college . . . and yes, on the school teacher who must use these banks because [school teachers] are not paid enough,” Lewis said. MAKERS OF MIDDLE-SIZE LOANS such as Household Finance were mm#**mefrmmme4fr4mm m.~*m*mmsmm~m s Tte Sfate at Deptession: Papets oft a Azoblem, Pa9e 20