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As of early April 2009, the Texas
Legislature and the U.S. Congress are both
considering legislation to regulate payday
lenders. Last week, state senators announced
pending bills that would establish oversight
of the largely unregulated payday loan
industry. The proposals include licensing
requirements, a 36% limit on interest rates
charged on payday loans, a limit to fees,
and oversight of collection practices.
At last week’s news conference, Wendy Davis,
D-Fort Worth, stated, “It is high time we
put an end to the obscene profits that they
are making off of our families who are just
trying to make ends meet.” Davis is the
sponsor of Senate Bill 2131, which intends
to regulate credit service organizations (“CSOs”)
that make payday loans. The Senate bill
would place CSOs under the authority of the
Texas Consumer Credit Commissioner, who
would license the lenders, impose fee
restrictions, and oversee debt collection
practices.
Payday loans are small, short-term loans
that are structured as advances on the
borrower’s next paycheck. The borrower pays
a fee and writes a post-dated check that the
company agrees not to cash until the
borrower’s payday. The normal fee for that
service is equal to an annual interest rate
of around 400%, although fees in excess of
1,100% are not uncommon.
Frequently, the borrower cannot afford to
repay the loan out of their next paycheck,
and the loan is either “renewed” for
additional fees, or the post-dated check is
dishonored when it is presented to the bank.
Payday lenders have been accused of using
illegal and abusive debt collection
practices when attempting to collect funds
to cover the dishonored checks.
Texas ranks fourth nationally in the number
of payday lenders, and several Texas cities
(including Fort Worth, El Paso, and San
Antonio) have more businesses offering
payday loans, check cashing, and pawn loans
than they have bank and credit union
branches. Fort Worth-based Cash America, the
nation’s largest operator of pawnshops, has
hired lobbyists and started a political
action committee that gave more than
$170,000 to national candidates in the
run-up to the 2008 elections.
Rep. Luis Gutierrez, D-Ill., has sponsored a
bill in Congress that would regulate the
payday loan industry and provide crucial
protections for borrowers. Gutierrez is the
top Democrat on the Financial Services
subcommittee, which is in charge of consumer
credit issues. Although he originally wanted
to ban the payday loan industry entirely, he
says his bill is the best deal he could
manage in the face of the industry’s
aggressive lobbying. “While they may not be
JPMorgan, Chase, or Bank of America, they’re
very powerful,” he said.
Advocates of payday lending defend their
practices, saying that the loans are very
economical compared to the cost of several
bounced checks, and that they are the only
quick-credit option for many low-income and
moderate-income people. Critics contend that
the loans are inherently abusive products
that trap borrowers in a devastating cycle
of debt.
Kraft & Associates is a federally designated
Debt Relief Agency under the United States
Bankruptcy Code. We assist people with
finding solutions to their debt problems
including, where appropriate, assisting them
with the filing of petitions for relief
under the U.S. Bankruptcy Code.
Kraft & Associates
2777 Stemmons Freeway
Suite 1300
Dallas, Texas 75207
Dallas: (214) 999-9999
Fort Worth: (817) 999-9999
Toll Free: (800) 989-9999
FAX: (214) 637-2118
E-mail: info@kraftlaw.com
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