Newly Launched Alliance Aims to Reform State Payday and Auto Title Loans
Texas has long been considered the Wild West of payday lending, with some of the loosest regulations in the country on those flashy shops boasting short-term loans.
After mixed results in the last legislative session, more than three-dozen organizations have teamed up to launch the Texas Fair Lending Alliance, making a new push for reform. The consumer protection group, launched today, advocates changing Texas’ laws governing short-term payday and auto title loans.
The alliance also released a poll showing Texans support capping the interest rates and fees that payday and title loan businesses can charge. Borrowers currently face more than 500 percent APR for these loans, according to the public interest law center Texas Appleseed, one of the members of the Alliance.
Eighty-five percent of registered voters who participated in the poll believed the appropriate rate for short-term loans should be 36 percent or less, and three-quarters of them supported changing the law to allow for a capping of fees and rates.
In Texas, short-term loan businesses have blossomed by charging consumers oppressive rates. In 2011, an eight-day payday loan carried 1,153 percent annual rate in Texas—one of the highest in the nation. The average annual rate for loans in other states was 400 percent, according to the nonprofit Center for Responsible Lending.
These extreme rates leave borrowers with endless debt as they struggle to pay back far more than the amount of their initial loan. Payday loan businesses are heavy marketers, particularly ubiquitous in low-income neighborhoods.
The Texas Fair Lending Alliance includes groups representing consumers, financial institutions, low-income communities and the elderly, and is also joining forces with the multi-denominational Texas Faith for Fair Lending.
“When a desperate borrower takes out a $4,000 auto title loan, pays $1,200 a month for months on end and never pays it off, something is terribly wrong with the law,” says Suzii Paynter, Director of the Texas Baptist Christian Life Commission, speaking on behalf of Texas Faith for Fair Lending.
City councils in at least 10 Texas cities including Dallas, Austin, San Antonio and Brownsville recently passed zoning ordinances to limit the expansion of payday lending businesses. But despite these small gains, the Alliance intends to continue the fight to push for new laws that protect consumers from being exploited by the largely unregulated industry.