How to Loosen a Noose



Tell someone that payday lending is a bad idea, and they will nod in agreement. Describe a typical scenario of a poor individual trapped in the cycle of loans and debt from using a payday loan, and watch casual agreement turn to flat outrage.

In Texas, payday lenders grace many a street corner—especially in low-income neighborhoods. There are more of these nefarious lending institutions in the state than McDonald’s and Whataburger chains combined. Payday and auto title lenders in Texas have seen business flourish over the past decade, as they have used a legal loophole to send interest rates on some loans soaring.

These entities use a loophole in a law called the Consumer Services Organizations (CSO) Act that sets no limits on rates and fees they charge borrowers, allowing them to collect annual interest rates of 500 percent or more on loans made to consumers. Ironically, the CSO law was designed to help Texans with bad credit build up a positive lending history in order to increase credit scores. Instead, over 98% of registered CSOs in Texas are payday and auto title lenders that help further bankrupt individuals instead of repairing their credit.

Under the Texas Constitution, the State Legislature has the authority to define interest and to fix maximum rates for lenders. In true bi-partisan fashion, members from both sides of the aisle are taking up bills this session to curb soaring interest rates that payday lenders in Texas are levying on short-term loan consumers.

The bills would outlaw third-party fees for arranging consumer credit. Payday and auto-title lenders then would be regulated. The bills would not outlaw high-rate loans or establish burdensome regulations, but would create regulations that permit loans that yield an annual interest rate of 135 percent. HB 410, filed by Rep. Tom Craddick, (R-Midland), has been joined by identical legislation filed by Rep. Eddie Rodriguez, (D-Austin) and Rep. Joe Farias, (D-San Antonio). In the Senate chamber, Sen. Wendy Davis, (D-Fort Worth) and Sen Royce West, (D-Dallas) are carrying identical bills. Sen. Davis has also re-filed a bill from last session that would provide penalties to payday loan houses for preying on members of the Texas National Guard and US armed forces, and their dependents—a group that has been targeted with outrageous loan conditions in the past.  

A diverse array of faith-based organizations, consumer groups, and other advocates have united with these legislators to work towards closing the CSO loophole in the 82nd Legislative Session.

Sign the Texas Faith for Fair Lending Petition to have your voice heard!

Statesman Op-Ed calling Texas lawmakers to pass regulations on payday lenders 

Statesman article on the Craddick and Rodriguez bills