AUSTIN — Legislation (SB 2019) being considered at the State Capitol aims to bring the interest and fees charged by payday and auto-title lenders in line with the standards for other Texas financial institutions. State Rep. Tom Craddick (R-Midland) said as it stands now, those loans can end up with an annual percentage rate as high as 500 percent.
"There's a loophole that gets around the usury laws," he said. "We're trying to correct that and get rates down to where these people who are having to borrow on this basis are not being taken advantage of."
Craddick said his bill would create a level playing field by applying the same fair rate and fee structure on all consumer loans.
Craddick started working to close the loophole after hearing a story from friends who had given a used car to a woman who was working for them.
"Her mother died, and to have a funeral, she went and borrowed like $2,000 on this car," he explained, "and by the time the people found out about it, she owed $12,000."
Her story was not unusual, however. In the last year alone, more than 35,000 Texans lost their cars to auto title lenders.
Among the groups in support of the legislation are AARP, Texas Association of Goodwills and Texas Baptist Christian Life Commission. Stephen Reeves, Commission director of public policy, said those hit hardest with the exorbitant fees and interest are those who can least afford it.
"There are controls on so many other of our products, but here when we're dealing with some of our most vulnerable and desperate borrowers - usually the working poor - it's no holds barred for those lenders. They're charging rates that no one else would consider fair," he said.
Payday and auto-title lenders contend they need to charge more because they take much more risk, since they offer loans to those who cannot qualify anywhere else.