AUSTIN -- The Texas Catholic Conference today expressed its support for HB 2019, filed by State Rep. Tom Craddick (R-Midland) to strengthen protections on working class families that suffer from recurring cycle of debt brought on by the predatory lending practices of payday and auto title loan industries.
The bill seeks to correct usury practices under current law, whereby payday lenders charge high recurring fees and up to 500 percent annual percentage rates (APR) on payday and auto title loans. Surveys show that such exorbitant fees and interest cost the average borrower somewhere around $840 or more for a $300 loan and around $1,200 per month in fees alone for a $4,000 auto title loan without reducing the loan principal.
Payday lenders have taken advantage of a loophole in Texas law that was created when state lawmakers sought to help low-income families in need of establishing credit by raising the cap on interest rates. Instead of making it possible for people with poor credit to improve their situations, the change had the opposite effect of leaving working families vulnerable to debts and fees they could not pay.
Representative Craddick's HB 2019 would end such exploitative practices by regulating payday and auto title lenders (also known as Credit Access Businesses), by closing the loophole and putting these industries back under the same long-standing usury limits that other lenders already comply with under Texas law.
Under Craddick’s bill, Texas would not be putting these lenders out of business. The interest and fees caps for consumer loans would average 80 percent APR—a rate that is high, but much less than what is currently charged by payday and auto title businesses. In fact, these same lenders do a very good business in many states with just that rate structure. According to the Consumer Financial Services Association, the typical fee charged by payday lenders in those states ranges from $10 to $15 per $100 borrowed for a two-week loan. These businesses currently charge twice those rates or more in Texas.
"Everyone has experienced a moment when we have needed financial help—the car breaks down, a child is ill, the utility bill takes an unexpected jump—and we need assistance," said Jeffery R. Patterson, executive director of the Texas Catholic Conference. "For people of limited means, this has meant turning to the neighborhood credit shops or responding to TV commercials with that promise to resolve their temporary debt woes. Instead, they get trapped in a cycle of debt that only makes things worse."
This is important to the Catholic Church and countless other religious and charitable organizations who have increasingly found that often the cash assistance they provide to families for food and utilities is directly related to the amount of payday loan debt the family has to pay. In effect, charitable assistance has been helping a needy client pay off a payday lender. Charities do not have the resources to line the pockets of the payday lending industry.
The Texas Catholic Bishops have emphasized that their intent is not to shut down this industry. The Church recognizes that people may need short-term loans to meet basic or emergency needs; and reasonable and equitable profit is acceptable in economic and financial activity. Nevertheless, the excess of usury is to be morally condemned. Forcing poor families to pay 500 percent APR on short-term loans is wrong.
Instead, Rep. Craddick's HB 2019 levels the playing field by imposing the same fair rate and fee structure on all consumer loans. It upholds Texas’ longstanding opposition to usury in its financial markets—replacing the over-reaching fees charged by payday and auto title lenders with a fairly structured loan product.