The Payday Scam

Tom Craddick and his bleeding heart are right. The former speaker and Big Bidness-friendly Texas House veteran from Midland wants to muzzle the wolves of predatory lending. Apparently, Craddick had a come-to-Jesus moment several years ago when the Midland paper ran a story about one of his constituents. Linda Lewis was a caretaker who took out an auto title loan backed by her Toyota Camry to pay for her stepson’s funeral. After paying $12,000 on the loan without making an appreciable dent in what she owed, she filed for bankruptcy.

“No longer do I think the Legislature can stand back and watch these businesses take advantage of people in need,” Craddick said last month in a hearing. Craddick and many other Republicans and Democratic lawmakers want to close a legal loophole that allows payday and auto title lenders to operate without regulation. Consumer groups and faith leaders, who’ve turned out in force to testify about what they see as usury, support Craddick’s approach. Hell, everyone but the payday sharks supports the bill.

However, Rep. Vicki Truitt, a Republican from the Fort Worth suburbs, chairs the House committee that controls banking legislation. She has made it clear that she won’t be letting Craddick’s bill, or any other bill that puts a cap on interest rates, pass out of her committee. Truitt favors a much softer approach—her own: consumer education, transparency of loan terms and some limits on how many times you can roll over a loan. That’s as far as she’ll go.

Truitt has ignored the Biblical injunction against usury in favor of a peculiar strain of market fundamentalism. “There is a market for short-term loans,” she said in March. “Consumers will not be well-served by eliminating these sources of short-term and unsecured loans. The alternative for them will be even worse.”

There is indeed a huge demand for credit. With nowhere else to turn, desperate folks—and Lord knows there’s no shortage of those—are taking out loans that are neither fair nor necessary.

Roughly one-third of the states have imposed strict caps on interest rates, typically around 36 percent APR. Another third have a reasonably strong regulatory structure. No state allows payday and auto title lenders to operate with impunity—except Texas. Here, unregulated lenders aren’t legitimate businesses. They prey on victims of an economic crisis caused by other greedy and reckless financial players.

But it’s not the payday business that needs to be shamed. It’s lawmakers like Truitt who defend an indefensible industry.