Texas Legislators Consider Regulating Payday LendersState Representative Joe Farias has been fighting to get legislation passed that will regulate the 2,800 payday lenders in Texas and provide caps on loan interest rates which can increase up to 400% for a payday loan.

“They can operate without being regulated at the city, state,  or federal level…The intent we are caring forward is to have measures,  like the banks and credit unions,  that regulate them on their lending practices” said Farias. Unregulated lenders have “targeted military personnel and now they’re extending that to universities and colleges…They’re offering you a free T-shirt with a $300 loan, but the problem with that is the average person who gets a $300 loan ends up paying $840,” he said.

Currently federal law limits the interest rate that banks and credit cards can charge to 36 percent; but payday lenders have been able to avoid the interest rate caps effectively charging as much as 400% for loans to borrowers who are often low-income and unaware of how payday loans really work.  Already, some states have come down hard on payday lenders, most recently an outright ban on the predatory loans in Arizona.  And because the harsh economy is driving many more individuals to take out payday loans, car title loans and other types of predatory loans due to desperation, the effects of these loans are beginning to spread.   Limiting interest rates on payday loans could be a first for Texas to combat and eventually eliminate predatory lending practices in this state. But if Texas is serious about combating the predatory lending policies of payday lenders and others, we need to include harsh penalties for companies who violate any new restrictions that are created.

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