Payday Lending 1-Pgr 2012.1

 

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Payday Lending Progress in Texas Currently, almost all payday and auto title lenders operate in a loophole in state law that sets no limits on the rates and fees they can charge Texans on small dollar, short term loans. It is common for the rates and fees charged to be the equivalent of 500% APR. These high cost loans hurt Texas families. In 2011 lawmakers establish established ed a basic regulatory framework for short-term lenders; now lawmakers should focus on ending the cycle of debt. What is a payday loan?  Payday loans are small, short-term loans made by lenders at extremely high interest rates. Typically, a  borrower writes a personal p ersonal check for $100-$300, $10 0-$300, plus a fee, payable to the lender. The lender agrees hold onto the check until the borrower's next payday, usually two weeks later, only then will the check be deposited. In return, the borrower gets cash immediately. The fees for payday loans are extremely high: up to $20 for every $100 borrowed. The interest rates for such transactions can be as high as 500% for a two-week loan.

People who have difficulty paying back these loans can rollover the loan by writing a new check that adds on the same fee. While these loans are supposed to be used on an emergency basis, the average customer makes eleven transactions a year, creating cycles of debt. These predatory loan operators entice desperate customers with the promise of “easy credit” only to  pull them into i nto a cycle of debt that drains money mon ey away from family necessities and from the local economy.

for aid. Loans made without regard for the ability of the borrower to pay them back are detrimental to the financial wellbeing of people in need of short term financial help. Are there alternatives?  Yes, churches are often a source in emergency situations. In addition, many credit unions are stepping up to provide small-dollar loan products. In September 2010, the National Credit Union Administration launched a program that offers loans that are similar to payday loans, at better terms for  borrowers. How has the Legislature responded so far?   nd During the 82  Legislative Session, legislators passed HB 2592 and HB 2594 (Representative Truitt, R-Fort Worth). These bills create a new regulatory structure for payday and auto title lenders. HB 2592 creates an important disclosure of rates to consumers, and HB 2594 creates a registration for lenders with the Office of Consumer Credit Commissioner.

Texas faith communities are front-line witnesses to the pain and suffering caused by such financial ruin,

What should the Legislature do in 2013? 

and it is to our ministries that those in debt often look

Texas needs safeguards to prevent  becoming trapp trapped ed in cycles of debt. debtpeople . Thesefrom measures could include:

$300 loan made on May 5th

Date

Fees & Interest Charged

Total amount paid

Original Loan

5/19/2012 (2 weeks)

$61.06

$361.06

$61.06

$422.12

$61.06

$483.18

$61.06

$544.24

$61.06

$605.30

$61.06

$666.36

2nd Loan 3rd Loan th

4  Loan 5th Loan 6th Loan

5/26/2012 (4 weeks) 6/9/201 (6 weeks) 6/23/2012 (8 weeks) 7/7/2012 (10 weeks) 7/21/2012 (12 weeks)

  Capping fees on short-term loans   Creating mandatory default installment plans

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The state should encourage sound financial practices that help people in need gain security and selfsufficiency. Fair lending laws are good for all Texans. Texas Faith for Fair Lending is a grassroots effort by people of faith to change payday and auto title lending practices in Texas. Find out more at www.texasfait www.texasfaithforfairlending.o hforfairlending.org rg

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