As we go into the holidays, one of the busiest times for people to go into debt, some headlines have been emerging about some locally and statewide, to address payday lending. These short-term advance or auto-title loans are increasingly controversial as they are seen as a modern form of usury. Often trapping low and moderate income people in unending cycles of debt, often at interest rates in the 3-figures.
Locally, Laurie Johnson of KUHF News reports that Mayor Annise Parker’s is looking at efforts to draft an ordinance to regulate storefront payday lenders, as has happened already to some degree in San Antonio, Dallas and Austin. However, she is hopeful the new state legislature will act first to control the ability for loans to be rolled over time and time again. Describing her concerns the mayor remarks:
“We’re all trying to achieve the same thing, to rein in predatory lending practices. I believe that there’s a need for payday lending. But what happens is once someone gets the first loan, they get persuaded to just roll the loans forward and the interest rates go up and they get trapped in a cycle.”
(Source: KUHF Public Radio)
Forest Wilder is less optimistic about state action. Finding that Texas is doing far less than most states on this issue, he notes in a recent piece for the Texas Observer that state legislators tend to look at any legislation on this matter in infantile terms. Seeing the borrowers as a child rather than the lending industry as acting in an unethical fashion.
…Texas is an outlier, even among American states. Payday and title lenders in Texas have no limits on what they can charge. Almost every other state either bans payday loans or imposes a strict cap on interest and fees, often 36 percent.
The legally and morally rickety structure of credit access businesses in Texas is predicated on circumvention of the state’s anti-usury laws. The loans actually are barred from exceeding 10 percent interest. It is the fees, often triggered multiple times, that strip working people of their meager earnings. […]
One of the more grotesque aspects of the [Texas] legislative discussion about payday loans is the infantilization of people who use them, even by some well-meaning advocates. The presumption is not that the industry’s business model is predatory, but that its customers are financial illiterates too stupid to read the fine print. The poor things. Legislators don’t understand that Those People are making a rational choice. Many of them understand that they’re being ripped-off, but paying too much is better than the alternative: having their electricity or phone cut off, not being able to buy groceries, getting evicted. The options available to working people trying to survive on wages are different from those available to wealthy legislators with mutual funds, mineral rights, blind trusts, 401(k)s, college savings accounts, and all the other taken-for-granted accoutrements of casual affluence. They don’t understand how the other half lives.
(Souce: Texas Observer)
To date, San Antonio, Austin and Dallas have all passed legislation to try to curtail payday lending, but they have also all found themselves in litigation with the industry as a result.