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Truth in Usury Austin Texans were spared another jolt in interest rates on consumer loans this legislative session, largely through the intercession of the Senate. The action in the upper house interrupted at least a decade of jiggling with the state’s interest rates, which already are among the nation’s highest, if not the highest. Some have said they are the highest ever permitted in the history of the world. In 1960 the organized money lenders of the state aided in repealing the anachronistic provision in the Texas Constitution prohibiting interest in excess of 10% by advancing the well-financed argument that the prohibition kept loan sharks underground and thus unregulated. The Legislature thereupon legalized the exorbitant rates that previously had been exacted illegally. In 1965 the money lenders came back again, again seeking to raise interest rates. The Legislature passed a bill with such large increases that Gov. John Connally sent it back with a veto message that noted, “No evidence was presented to the Legislature to justify these specific rates, either on the basis of reasonableness or need.” Then, two years later, the Legislature passed a measure containing rates slightly below those Connally had vetoed. This year the money ‘lenders came out for Truth-in-Lending. Harlingen Rep. Menton Murray’s HB1127 included some very high interest rates as well as making the Texas consumer credit regulations conform with the federal Truth-in-Lending statutes. The House passed the bill, 115-26. . The most important provision of the Murray bill was the creation of a new high interest rate bracket for loans between $300 and $1,000. The simple interest rate for loans in this range was increased 50%. Coupled with the present 35% rate in the $0-$300 bracket, this would have increased the annual effective interest rate on a $1,000 loan repaid in 12 equal monthly installments from 19 3/4% to 24V4%. The new bracket would have raised interest rates on all loans from $300 to $2,500. Another provision would have extended the small loan ceiling from $100 to $200. Small loans in Texas have the highest of rates. This would have increased the effective rate on a $200 loan repaid in four equal weekly installments from 31 34% to 2411/4%. These rates were to apply not only to loans of consumer finance companies, but also to almost all installment loans made by banks and savings and loan institutions not secured by land. The writer was on the staff of Sen. Bill Patman and did research on the consumer loan problem for the senator. Mr. Logue is a student at the University of Texas at Austin. 4 The Texas Observer THE COMPANION Truth-inLending bill, sponsored in the Senate by Jim Bates, Edinburg, was stripped of its rates and talked to death in the Senate Jurisprudence Committee, though not because Bates did not try. The bill came up before the committee five times. The first time, it was routinely sent to a subcommittee composed of Bates, Tom Creighton of Mineral Wells, and Barbara Jordan, Houston. Though Miss Jordan refused to sign John Logue the report because of the inclusion of the high rates, the subcommittee chaired by Bates reported it back favorably to the Jurisprudence Committee. The meeting to consider it became heated as witnesses and Sen. Bill Patman, Ganado, repeatedly attacked the interest rate increases. Edward C. Fritz, a Dallas lawyer representing the Texas Consumer Association, pointed out that the proposed rates on the loans under $200 “would be the highest in the nation and the highest authorized rates that have ever been permitted in the world. … [They] would break our own world record.” Bates was heard to complain before the hearing ended that he had already heard the interest rate argument at least five times that day and that he was tiring of it. Patman told the committee that he would “just as soon have the Yugoslavian government enforce the consumer protection law as impose these harsh rates on the people of Texas.” The money lenders did not see things that way. Bob Hollingsworth, president of the Texas. Finance Conference,. pleaded the case of the small loan companies which were being squeezed out, destroying “independent Texas businessmen.” His claim that the finance industry provides a needed public service elicited a question from Patman about what things borrowers fi-. nance with loan company help. Hollingsworth cited wigs as a major item. The loan companies used to do a lot of boat financing, but the banks had been moving into that area and forcing the small lenders out, he said. Sen. Mike McKool, Dallas, wondered aloud whether Hollingsworth actually expected Texas senators to vote for the interest rates; apparently Hollingsworth did. Testimony at the hearing developed the information that loan companies have been averaging an 11-12% return on their investment from regulated loans alone. Fritz and John Spanogle, visiting professor of law at the University of Texas at Austin, both testified that interest provided only one source of income from the loan companies. The borrower is usually required to purchase credit life insurance, ostensibly for his own protection, from insurance cornpanies often closely linked to the loan companies themselves. Many companies get 50% or more of their total profits from their insurance-related operations. WITH THESE facts in the record, Patman attempted to kill the bill for the session by sending it back to subcommittee with instructions to report on June 2, the last day of the session. Only McKool joined him. Eventually the Bates bill was sent back to subcommittee while SB 549, a Truth-in-Lending measure by Senator Don Kennard, Fort Worth, which lacked the rate increases of Bates’ bill, was sent to the floor. Kennard’s bill finally passed the Senate but died in the House. The next week the Bates bill returned from the same subcommittee, again over Miss Jordan’s protest. The rate increases in the $100 to $200 category had been removed, but the other increases remained. No additional consumer protection measures had been added, so the bill which eliminated some prohibitions against fraudulent advertising and failed to prohibit harrassment of the borrower still actually reduced consumer protection. What turned out to be the key vote on the bill for the session came on Kennard’s motion to send it to a new subcommittee. This carried, 7-6. Voting “yes” and thus against the bill were Joe Bernal of San Antonio, Grady Hazlewood of Amarillo, Miss Jordan, Kennard, McKool, Patman, and Jack Strong of Longview. Opposing the motion were Bates, Creighton, Jack Hightower of VerSchwartz of Galveston, and Murray Watson of Waco. The fourth and fifth hearings on the bill, from which the new subcommittee chaired by Hazlewood had deleted all interest increases, featured an unusual device, the committee filibuster. Patman continued his unyielding opposition, arguing that the Bates bill would serve as a vehicle for the reinstatement of “poisonous rates” on the Senate floor or in conference committee. When he proceeded to talk at length himself, while questioning Francis Miskell, commissioner for consumer credit, a motion to cut off debate was made and failed. The last meeting of the Jurisprudence Committee brought a continuation of Patman’s filibuster, which Committee Chairman Charles Herring of Austin ruled permissible. Moore impatiently allowed that he had never seen a filibuster in committee in all his 23 years in the Legislature and that he did not much like the innovation. He urged Patman to filibuster on the floor like others, but Patman, happy with his surprisingly effective maneuver, continued talking until the end of the meeting. The hearing was not resumed. The implications of the interest fight are interesting. The people of Texas have been spared further gouging by money lenders