New Payday Lending Legislation in Texas Good, But Not Enough

Consumer groups in Texas are happy with the legislation that has been passed in the state regarding payday lending and auto title loans, calling them “good first steps.”  They generally agree the laws are a step in the right direction, but they are not enough.  More needs to be done to get the industry under control and protect borrowers from the debt spiral many believe are common with these types of short-term credit solutions.  In Texas, the industry has grown in recent years with little regulation until the most recent legislation passed in 2011.


This new legislation, which went into effect on January 1, requires state licensure for these businesses as well as specific disclosures to borrowers about fees.   This has garnered a significant amount of industry data that could be useful for further legislation.  For example, 3,000 CABs, or Credit Access Businesses, have been approved for licenses since the law went into effect.  Also, after a review in September it appears that 90.9% of such businesses are compliant with the requirements of the laws.   The general idea of the law seems to be working, but consumer groups still maintain that until fees are capped, borrowers are at the mercy of these short-term credit businesses and face financial ruin despite disclosures of fees.  No on in a situation to need such a service is going to be likely to turn down needed cash due to fees.


Despite the lack of cap on fees, one very positive feature of this most recent legislation is that is gave the state of Texas the ability to enforce the federal Military Lending Act, something it could not do before.  Local cities are also passing their own ordinances, but the state is being encouraged to reinforce its intent for uniformity in the way these credit facilities are treated throughout the state.  The fact is, they are likely here to stay, and the service could be useful if better laws were in place to protect borrowers from getting trapped.  That is just what consumer advocates and Church groups intend to make happen.


Though it is agreed this is a great first step, the issue is likely to be a hot one in the 2013 legislature.  While the industry does not take kindly to regulation, those that charge exorbitant fees and interest need to be reined in somewhat.  Failure to do so could result is dire consequences for borrowers and lead to catastrophe for an economy that cannot take much more.   Only time will tell how it plays out.

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