More Texans are standing up to the loan shark interest rates of the state’s payday lenders. According to a survey commissioned by the AARP, more than three-fourths of Texans oppose payday lenders charging up to 500% APR interest and almost two-thirds support the licensing and regulation of payday lenders (64%). The opposition has apparent gained some supporters in the Texas legislature. The past week, Senator Wendy Davis of Fort Worth introduced a bill which would cap fees and interest on loans made by payday and car title lenders which was approved by the Senate Business and Commerce Committee. The bill will now go before the full Senate for consideration.
The senators’ bill would place payday and car title lenders under the same regulatory framework that governs banks and credit unions. The bill would impose a 15 percent rate cap on fees for payday loans. It would also limit the size of the loan to 35 percent of a borrower’s gross monthly income up to a maximum of $1,240. For auto title loans, the bill creates a tiered rate system depending on the size of the loan. Loans of up to $700 would be capped at 20 percent and the next $700 would be capped at 18 percent. Loans over $1,400 would be capped at 15 percent. The bill would also limit the number of loan rollovers and require lenders to accept partial repayment of the principal to help keep consumers from a worsening pattern of debt. Lenders would be required to offer a repayment plan on a customers’ third consecutive loan renewal.
If this bill passes it could help many debtors who fall into the trap of payday loans to avoid some of the more harsh consequences associated with this type of financial product. Too many payday loan borrowers become stuck with these high interest loans which only bankruptcy can free them from if they are unable to make payments. This move on the part of the Texas legislature is one in the right direction.