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Texas Senate
April 25, 2000
(512) 463-0300

The Senate Economic Development Committee's Subcommittee on Consumer Credit Laws Studies Interest Rates in Texas

AUSTIN - Immediately after Private Sector Business Financing, the Senate Economic Development Committee's Subcommittee on Consumer Credit Laws in the Senate Chamber. The subcommittee consists of Senators John Carona of Dallas serving as chair, David Sibley of Waco, and Troy Fraser of Horseshoe Bay.

Consumer Credit Laws is another division of the Senate Economic Development Committee. This subcommittee is holding hearings to gather information about a portion of charge 3, issued by Lt.Gov. Rick Perry to be studied during this legislative interim. The subcommittee is in charge of studying the effect of usury limits on the various consumer lending entities in the state. It also has to evaluate the effect of the federal Financial Services Modernization Act on consumer credit laws in Texas.

The following invited witnesses provided testimony: Randall James, Texas Banking Commissioner; Leslie Pettijohn, Consumer Credit Commissioner; Jose Montemayor, Texas Department of Insurance Commissioner; Robert Power, Texas Financial Services Association Commissioner; and Karen Neely of the Independent Bankers Association of Texas.

One of the main issues discussed in the meeting was pay-day lending. This type of loans are extended for a very short period of time --until "pay-day"-- at a high interest rate. It is usually targeted at low income people, who may need a loan to make ends meet and end up paying rates of interest as high as 900%. Unlike pawn shops, these businesses are not regulated by the state. Members and witnesses alike agreed there is a serious need for regulation, but this can not be debated until the next legislative session.

The issue of interests rates charged by banks and credit cards companies was also discussed during the meeting. Texas law allows interest rates of no more than a 10%, but institutions from other estates are authorized by federal law to charge Texans higher rates. Members of the subcommittee also examined the topic of privacy rights in the sharing of information by banks and insurance companies. Today, the consumer has to inform the bank or credit card company, by letter or telephone call, if he or she want their information kept private. Many times, the consumer won't read the fine print and doesn't realize the bank is sharing that information with other institutions.

The subcommittee stands recessed subject to the call of the chair. The members will submit a report to the Economic Development Committee before the end of the legislative interim.

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