Report spurs new payday loan concerns: Texas legislature
Thursday, 09 April 2009
AUSTIN -- Hispanics in Texas are the top users of high-interest payday loans, and many wind up repaying far more in fees and interest than they borrowed, according to a study released Wednesday by a nonprofit group.
After the report, state Rep. Marisa Marquez, D-El Paso, and other legislators renewed calls for increased regulation of payday lenders.
"We need to have a clear set of rules of the road for (payday lenders), a cop on the beat to enforce those rules and some strong safeguards to protect consumers," Marquez said.
Payday loans are high-interest, short-term loans typically taken out by lower-income consumers. Lending entities in Texas can pay a $100 annual fee to register with the secretary of state as a Credit Service Organization, ensuring that they are not subject to limits on fees they charge consumers for loans.
Texas Appleseed surveyed 5,000 residents in Dallas, Houston, Austin and San Antonio to gather information on the payday lending industry. It found that 13 percent of those surveyed use payday loans for essentials such as utilities and groceries, often because they could not get loans from mainstream lenders.
More than 40 percent of those who reported using payday loans were Hispanic, according to the study. Nearly 60 percent of those surveyed reported extending their payday loans, a cycle that often results in borrowers paying more in fees and interest than they borrowed in the first place.
Julie Hillrichs, a spokeswoman for the Consumer Service Alliance of Texas, said payday lenders are already regulated by state and federal laws that require disclosure of service fees and a grace period for customers to change their mind on the loan without penalty.
And Michael Price, executive director of the Texas Coalition for Consumer Choice, said payday lenders fill a need not met by banks.
But Marquez, along with state Reps. Carol Kent, David Leibowitz and Joe Farias, said reforms were needed to protect borrowers. The proposed regulations would require payday lenders to be licensed with the Office of Consumer Credit Commissioner, which would establish guidelines for fees charged by payday lenders.
Leibowitz, D-San Antonio, said the number of credit service organizations in Texas, mostly payday lenders, had increased from 100 in 2005 to more than 400 with 2,000 branches today.
Registered credit service organizations and their branch offices number more than 100 in El Paso, according to the secretary of state.
Ray Sarabia, head counselor for El Paso Affordable Housing, said that because repayment of a payday loan is not reported to the credit bureau but a failure to repay is reported, the loans can hurt a consumer's credit score.
Source:: Elpasotimes.com