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Texas Senate
January 19, 2000
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Senate Interim Subcommittee on Consumer Credit Laws Holds Austin Hearing on Wednesday

AUSTIN - The Senate Interim Subcommittee on Consumer Credit Laws held a hearing today, January 19, 2000, at the Texas State Capitol.

The subcommittee met to discuss and hear invited testimony on the following charges: Review Article 16, Sec. 11 of the Texas Constitution, relating to the maximum rates of interest for contracts entered into in the State. Study the effect of usury limits on the various consumer lending entities in the State. And, evaluate the effect of the federal Financial Services Modernization Act on consumer credit laws in Texas.

The subcommittee consists of Senators John Carona of Dallas serving as chair, David Sibley of Waco, and Troy Fraser of Horseshoe Bay.

The hearing began with testimony provided by Leslie Pettijohn, the Consumer Credit Commissioner for Texas. She spoke on consumer credit and consumer loans under $500.

Next to testify was Randall James, Texas Banking Commissioner, John Heasley, of the Texas Bankers Association, and Karen Neely, General Counsel for the Independent Bankers Association of Texas. James discussed Texas usury laws and exportation of interest rates. With regards to exportation of interest rates, James used the example of credit cards. He stated that currently there is not a single bank in Texas that issues state credit cards, mainly because of Texas' usury laws. Banks that offer credit in Texas, usually do so from banks out-of-state, since they are not subject to Texas' loan laws. Heasley echoed James' testimony. James stated that many Texas banks offer credit cards through out-of-state banks in order to side step Texas' usury ceiling rates.

Testimony was then given by Jeff Huffman, Vice President of the Credit Union League. Huffman's testimony dealt with credit union loans in Texas. He stated that 47% of depository institutions in Texas are credit unions. The average credit union loan is $6,350, and 84% of credit union loans in Texas are consumer loans. In 1992, Texas saw a 11.1% increase in credit union loans, and 6.2% of those loans were in credit cards.

After Huffman's testimony, Rob Schneider, of the Consumers Union, gave testimony to the subcommittee. Schneider spoke about the process of payday loan lending--the process of using a personal check as collateral against a personal loan--and its problems. He stated that there are three problems concerning payday loan lending: high costs of loans, use of personal checks as loan security (which promotes hot check writing), and the large number of renewed loans.

Schneider concluded, and then Linda Eades, Deputy Attorney General for Litigation, of the Attorney General's Office, began her testimony. Eades discussed sale-lease back options and a current case the Attorney General's Office is handling that deals with payday lender suits in Edinburgh, Texas.

Next to testify was Sam Kelly, a lawyer for the Texas Consumer Finance Association. He gave testimony that focused on consumer loans and loan lenders.

Eric Norrington, Vice President of Ace Cash Express Inc. and a member of Texas Association of Check Cashiers, along with Bill White, of Cash America, concluded invited testimony. Norrington and White spoke in favor of payday lending. Norrington said that much of the negative notions of payday lending come from stereotypes of individuals that participate in payday lending services. Norrington stated that, on the average, payday loan applicants are in the middle class pay bracket. The average payday loan applicant is a 35-year-old individual, that make $33,000 a year. And, 33% of them own their own home.

No public testimony was given today.

The subcommittee recessed subject to call of the chair.

Upon final adjournment of the Senate Interim Subcommittee on Consumer Credit Laws, it will submit copies of a report to the Economic Development Committee, as soon as possible. The Economic Development Committee will then submit its own report to the Lieutenant Governor, Secretary of the Senate, Legislative Council and Legislative Reference Library, no later than September 1, 2000. This date has been chosen so that the work of the committee can be considered when the Legislative Budget Board is developing performance and budget recommendations to the 77th Legislature.

Session video and all other Senate webcast recordings can be accessed from the Senate website's Audio/Video Archive.