Time to protect consumers from predatory loans

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By REP. MIKE VILLARREAL, REP. CRAIG EILAND and SEN. RODNEY ELLIS

We would like to congratulate the City of Houston for passing an ordinance to protect its residents from predatory payday and auto title loans, and we urge other cities in the Houston-Galveston area to do the same.

Last year United Way of Greater Houston and Catholic Charities of the Archdiocese of Galveston-Houston successfully joined with faith community leaders and non-profit assistance programs to urge the City of Houston to pass the local ordinance. These organizations are partnering again this Thursday as Catholic Charities in Houston, 2900 Louisiana St., hosts a 3 p.m. forum where Texas Faith for Fair Lending will hear from clients who have been directly impacted by payday and auto title lending.

Why should other cities in the area pass this ordinance?

Houston, Dallas, San Antonio, Austin, and El Paso have all passed local ordinances to regulate payday and auto title loans. But now lenders in big cities are sending customers from the regulated cities to their stores in neighboring communities, so it is crucial that those municipalities pass ordinances to protect consumers as well. In the Houston area, South Houston already has done so, and Missouri City has taken action as well.

The stories of payday and auto title loan borrowers – like those that will be heard on Thursday at the Texas Faith for Fair Lending forum – well illustrate the need for immediate action by municipal officials.

In San Antonio, for example, a nonprofit organization described one of their many clients who found himself in trouble with a payday loan. A gentleman in his seventies, living only on his Social Security check, took out a payday loan to cover an unexpected medical bill.

As often happens, he couldn’t pay off the loan and cover his other monthly expenses. Before long he had taken out multiple loans and was skipping meals so he could make loan payments!

Of course we wish he had made a better decision about taking out the loan in the first place. We wish he had negotiated a payment plan for his medical bill, borrowed money from a family member, or chosen one of the other options people turn to in states that don’t have payday lenders.

Yes, we need to do a better job of educating Texans about personal finances. But just as we learned during the nation’s subprime mortgage crisis in 2008, we also need basic regulations that help borrowers avoid loans they can’t afford.

The loans, which often have interest rates over 600%, are marketed as emergency two-week or one-month loans backed by the borrower’s next paycheck or car title. But the truth is that the business model actually relies on giving customers loans they cannot pay back on time.

In fact, a recent study by the new U.S. Consumer Financial Protection Bureau found that nearly half of all payday loan customers have more than 10 refinances or new loans each year. Each time the customer refinances the loan or takes out a new one to pay off the debt, he or she pays a new round of high fees. In Texas, those fees are typically around $22 per $100 borrowed.

The excessive fees charged by payday and auto title lenders drain millions of dollars from the local economy and exacerbate the burden on already over-stretched charitable and social service providers. What’s more, dozens of our friends and neighbors have their cars repossessed by auto title lenders, making it difficult for them to even get to work, much less get ahead.

During the last legislative session, industry lobbyists blocked the reform bill we tried to pass. While the legislature is clearly at a stalemate on this issue, Texas cities are not.

The common sense ordinance we recommend limits payments to 20 percent of the borrower’s monthly income, allows no more than three renewals, and establishes other protections to ensure customers aren’t caught in a cycle of debt.

To protect more consumers, we encourage all cities in the Houston-Galveston area and throughout the state of Texas to pass a payday and auto title lending reform ordinance.

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