Though reining in abuses by payday and auto title businesses has been on the agenda of the Texas Legislature for nearly two decades, we’ve yet to achieve statewide change. Now, the Legislature is considering eliminating the only protections that currently exist: local ordinances adopted in at least 42 Texas cities that put basic standards into place to address predatory practices in this market.
House Bill 3081 by state Rep. Giovanni Capriglione and Senate Bill 1530 state Sen. Craig Estes would pre-empt these 42 and counting local ordinances that are making a tangible difference in communities across the state. We are on the brink of reverting back to the Wild West of unfettered abusive lending unless we all speak up now and say, “Enough is enough.”
Payday and auto title businesses lend money to desperate families at average APRs of over 500 percent — and with loan structures that drag customers into an ongoing cycle of debt. The reason these businesses are getting away with such outrageous charges is that they found a loophole in our state usury laws.
Texas provides some of the fewest predatory lending protections in the nation. Over the last five years, these businesses have drained more than $7.5 billion in fees from some of the poorest Texas families and repossessed 187,378 vehicles. Around 1 in 7 auto title borrowers lost their car — often after paying more than the loan amount. A 2015 study from the Texas League of Women Voters found that in just one year, payday and auto title lending drained $351 million from the Texas economy and led to a loss of over 7,000 jobs.
With the state refusing to act, cities have stepped in. Dallas was the first city to pass a local ordinance reining in abusive lending, in 2011, soon followed by Austin, Denton and San Antonio. Now, these ordinances are statewide, with nearly 9.7 million Texans living in a city with an ordinance.
City councils are responding because of negative local economic impacts and after hearing devastating stories from food banks, social service providers, faith leaders and borrowers who are all pushing for change. One borrower, a disabled veteran, took out a $4,000 auto title loan; he repaid $7,000 and still owed the full $4,000.
“I never thought loan sharking was legal, but guess what? It is perfectly legal,” he said. “I have no recourse whatsoever.”
These stories are not atypical; they are the norm for payday and auto title borrowers.
With these ordinances now in effect, they are making a difference for Texans in communities across the state. In Austin, fees are down 31 percent and repossessions decreased by 54 percent. This means fewer Texas families are getting pulled under by crushing debt or the loss of a car — a necessity in a state where the loss of a car often means the loss of a job.
The ordinances do not cover everything that’s needed to ensure people are treated fairly. We need statewide reforms that cap fees and establish fair lending standards both in and out of city limits. I look forward to the day that the Texas Legislature is ready to stand up to the powerful and well-financed payday and auto title loan lobby and adopt meaningful reforms.
Until that day comes, let’s examine who stands to gain and lose if there are no basic standards. Let’s stand up for our communities, faith leaders, service providers and families who are doing what they can to rein in lending abuses and expand affordable credit options. Call your representative in the Texas Legislature to voice your opposition to HB 3081 and SB 1530.
Baddour is director of the Fair Financial Services Project at Texas Appleseed, a public interest justice center.