Texas towns take on payday lenders
Payday loan stores are doing very well, and their customer base is expanding.
Several Texas mayors are battling a foe that the Lone Star State's legislature doesn’t have the will (or guts) to face: payday lenders. One city has put a moratorium on new payday loan stores. Others are trying to control their spread with zoning laws.
The effort is described in one of a series of articles at DailyFinance about the expanding payday loan industry. What’s most amazing about the story is that payday lenders are able to flourish -- and charge astronomical annual rates of 400% or more -- in a state that has tough limits on interest rates.
There’s a big ol’ legal loophole, reporter Pallavi Gogoi wrote.
The payday lenders register as “credit services organizations.” "Ironically, a credit services organization under Texas law is an entity that, among other things, improves a consumer's credit history or rating, and provides advice or assistance to a consumer," Don Baylor, a senior policy analyst at the nonprofit Center for Public Policy Priorities in Austin, told Gogoi.
It’s a great topic, as payday lenders -- known for high fees ($20 for each $100 borrowed is not uncommon) and interest rates -- are enjoying a booming business, Reuters reports. And as big banks respond to the Credit CARD Act by providing less credit to riskier borrowers, more business will surely come their way. Reuters said:
"Over the last year or so we have definitely seen our customer demographics support the notion that a broader range of Americans are choosing the payday advance option," Jamie Fulmer, director of public affairs for Advance America in Spartanburg, S.C., said.
Customers' average income has increased to about $50,000 from $41,000, and a significant portion of customers have a median household income over $75,000, he said.
Meanwhile, payday lenders, pawn shops and car dealers are so far exempt from increased oversight as U.S. Senate negotiations continue over the role of a proposed federal consumer protection regulator, The Washington Post reports.
The Post said the “proposed exclusion of those industries has drawn opposition from an unlikely alliance of consumer advocates and banking trade groups, who argue that the government should impose equal stringencies on all lenders, banks and non-banks alike.”
Deep in the heart of Texas, cities and towns -- at least seven in number -- are trying to fill a vacuum left by a legislature that routinely punts payday loan regulation bills into a black hole in space. A bunch of payday loan companies are headquartered in Texas. That brings to mind that old saying, “Money talks and ….” You get the picture.
"One Texas House member even told me that it was never going to happen because the payday lobby was too powerful," said Bill Adams, mayor pro tem of Sachse, Texas. "That turned my stomach, knowing that decisions are based on special interests rather than on what's best for the people."
Apparently, that's not all that unusual. In Wisconsin, a bill to regulate payday loans enjoyed wide support until the industry contributed more than $28,000 to campaign fundraising committees for lawmakers in both parties. The bill “now appears all but dead,” The Associated Press reported.
What do you think? Do payday lenders need more regulation? Have you ever used one and, if so, what was your experience?
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