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Texas Bill Aims to Close Payday Lender Loophole


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By: Javi Calderon
Texas Bill Aims to Close Payday Lender Loophole

On December 11th legislation designed to tighten regulations on the Texas state payday loan lending industry was introduced in the Texas State Legislature.  The measure was proposed by Republican Senator Wendy Davis of Forth Worth who has made it a priority of her time in office to crack down on storefront payday lenders.

The legislation has bipartisan support, including two companion measures submitted by Republican Tom Craddick and Democrat Eddie Rodriguez. The measure also has wide-spread support amongst powerful interest groups like the Christian Life Commission, the Baptist General Convention and the AARP.

In 2009 Davis submitted a similar legislation that was never accepted by the State Legislature.

The goal of the measure is to close a loophole in state laws that have shielded almost 3,000 cash advance lenders from facing the same oversight as other financial institutions. Craddick claims that under the Credit Services Organization Act companies that offer credit services need only submit a $100 registration fee and can avoid regulation, examination and oversight.

Davis hopes to place payday advance lenders, car title loan lenders and pawn shops under the same regulation standards as banks and credit unions. She also aims to limit the amount or refinancing or rolling over loans into new pay periods. Roll over loans allow a customer to extend the period that they have to pay back their loan, but with an additional interest rate. If a loan is rolled over several times the interest paid on the original loan can become exorbitant.

In opposition to Davis’ measure, Alex Vaughn, president of the Consumer Service Alliance of Texas, argues that payday lenders, though perhaps in need of more strict enforcement, are in fact providing a financial service that is in demand by the population. Ending payday loans would hinder the ability of many people to get short-term credit to pay off unexpected financial expenses. Not only would the legislation put payday lenders out of business, it would affect the lives of thousands of consumers.

Payday loans, like credit cards and traditional loans are financial products that need to be considered carefully and used wisely. They are not intended as solutions to long-term money problems or for perpetual use.  Consumers get in trouble when they start rolling over these loans several times. Having a carefully thought out plan to payback the loan within the allotted time is key to having success with a payday loan.

Just like with any financial product consumer responsibility is the real issue at hand. A consumer should be aware of the consequences and terms of the loan they are signing before they do so.  Make sure the lender you agree to terms with is legitimate and licensed and review all the terms of the loan before you agree to sign. 

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