Texas Pay-Day Lenders Dodge Caps as Bills Put Industry on Watch
Texas lawmakers rejected limits on rates lenders can charge for loans tied to car titles and paychecks, while telling companies that they may face tougher rules if they abuse consumers in the second-most populous state.
Two bills, headed to Governor Rick Perry for enactment, require greater disclosure of terms and give the state the authority to collect consumer complaints. The measures don’t limit fees or add enforcement powers, said Leslie Pettijohn, head of the Office of Consumer Credit Commissioner in Austin.
Caps on loans at 35 percent of a family’s income and limits on how many times a loan tied to a vehicle or paycheck can be refinanced failed to win support. The lenders spent more than $8 million on lobbying, according to an advocacy group. Legislative leaders warned the industry to rein in business practices barred by states including Maryland and North Carolina.
“If it’s the industry’s intent going forward to hide behind an army of lobbyists rather than sitting down and working in good faith to resolve these issues, then those of us who understand that this industry has a place in the market may not be so understanding next time,” Senator John Carona, a Dallas Republican who heads the business and industry committee, said at a May 18 hearing. “We’re going to look very carefully at this industry over the next two years.”
Carona, who voted for the new rules, said industry lobbying influenced many lawmakers, making passage of lending limits unworkable, particularly in the House of Representatives.
Lenders including Cash America International Inc. (CSH) and Ezcorp Inc. (EZPW) warned that tougher laws would lead to job cuts, said Rob Norcross, a spokesman for trade group Consumer Service Alliance of Texas. He added that some said tighter limits may push them to leave the state.
Many legislators consider rules to cap interest rates and limit loans to be excessive regulation, Representative Gary Elkins, a Houston Republican who owns 12 pay-day lending stores, said in an interview.
Pay-day lenders spent $8.4 million on lobbyists from January 2009 to March 11 and donated $1.37 million to state lawmakers’ campaigns, according to a March report from Texans for Public Justice. The Austin-based nonprofit monitors lobbying activity and political finance and advocates for consumers.
Ezcorp, an Austin-based pawn-shop operator, opposed legislation that “would negatively impact the financial model of the business and make it harder for us to innovate,” Chief Executive Officer Paul Rothamel said on an April 21 conference call with analysts and investors. Rothamel also didn’t immediately respond to a telephone call seeking comment.
Put to Rest
“Cash America would like to see an acceptable bill passed in Texas this year, which would hopefully allow the Legislature and the industry to put this issue to rest,” Daniel Feehan, chief executive officer of the Fort Worth-based company, said on an April 21 conference call with securities analysts and investors. He didn’t immediately respond to a telephone call to his office seeking further comment.
Supporters of tighter rules, including consumer and religious groups, spent less than lenders to promote their views, said Stephen Reeves, a Christian Life Commission lobbyist. The group is affiliated with the Texas Baptist church.
“The industry played total hardball by saying the bill would cost Texas jobs and no one dared call their bluff,” said Craig McDonald, director of the Public Justice group.
About 3,600 retail stores in the state offer short-term loans, some that carry effective annual interest rates of more than 300 percent, Senator Wendy Davis, a Fort Worth Democrat, said May 23.
“This is the smallest little advancement,” said Davis, who voted “present” instead of for or against both bills. “It’s not what any of us would have hoped for,” she said.
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