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February 22, 2011
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Senator Wendy Davis of Ft. Worth
Sen. Wendy Davis of Ft. Worth proposed bills before the Senate Committee on Business & Commerce Tuesday that would give Texas regulatory authority over payday and auto title lenders.

(AUSTIN) — Payday lenders are using a loophole in state law to charge exorbitant fees to consumers, according to Ft. Worth Senator Wendy Davis as she spoke before her colleagues in the Senate Business and Commerce Committee Tuesday. That's why she filed two bills aimed at giving the state authority to regulate payday and auto title lenders. "This wide open loophole has enabled an explosion of payday and auto title lending in this state," she said. " I think every single one of us sees the proliferation of the companies, especially in our low income Hispanic and African-American communities."

When payday and auto-title lenders loan money, said Davis, they require a fee beyond the interest. Customers are not allowed to pay the loan in installments; they must pay the full principal within the loan period, usually a short time ranging from a few weeks to a few months. If the customer cannot pay the loan in full, they can pay the fee again, termed a "roll-over" and again until they have the money to pay off the principal. This can lead to customers repaying many times more than the initial loan before they can finally clear the debt. Davis said that nationally, 90 percent of these types of loans are rolled over 5 times, with nearly two-thirds of these loans rolled over 12 or more times. For a sixty dollar fee charged on a $300 loan, a person rolling over five times ends up paying the lender twice the amount borrowed, plus interest.

Davis' first bill, SB 253, would close the loophole that permits these lenders to avoid state oversight. The bill does not set an interest rate for payday lenders, but would subject them to the same state usury and fee regulations that apply to all other loans in Texas. "Payday lenders and car title loan lenders should not be treated differently than other lenders in Texas, avoiding rate regulation, reporting, oversight and investigation because they are functioning within a loophole," said Davis.

Her second bill, SB 254, would cap interest rates on payday and auto-title loans, but only for members of the military. The Senate passed a similar bill last session, but that measure died in the House in the waning days of the 2009 Legislature. Both bills remain pending before the committee. Chairman John Carona of Dallas said Senators would continue to work with stakeholders to craft a bill that protected consumers while still allowing a market for payday lenders to operate.

The Senate will reconvene Wednesday, February 23, at 10 a.m.

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