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Pro: Regulations protect consumers from predatory lenders

Jan. 26, 2014 at 11:02 p.m.
Updated Jan. 25, 2014 at 7:26 p.m.


TRUE COST OF A PAYDAY LOAN

• Loan Amount: $470

• Origination Fee of $22.85 per $100 borrowed: $107.39

• 10 percent Interest: $47

• Total cost of this payday loan if paid on time: $649.39

SOURCE: Center for Public Policy Priorities

PROPOSED REFORM

• Limit payments to an affordable percentage of a borrower's income

• Spread costs evenly over the life of the loan

• Guard against harmful repayment or collections practices

• Require concise disclosures of periodic and total costs

• Continue to set maximum allowable charges

SOURCE: The Pew Charitable Trusts

Compared with other states, Texans are taking out larger payday loans and paying higher fees - regardless of income or ability to repay - prompting some consumer advocacy groups to demand protections for consumers.

The Center for Public Policy Priorities, a liberal think tank, has pushed for such reforms.

Payday and auto title loans are the highest-cost products in the Texas marketplace, according to a report published Sept. 15.

With annual interest rates ranging from 250 to 800 percent, "many consumers struggle to repay these loans," the report stated.

Payday loan officials in Victoria declined to comment on this story.

Victoria City Councilwoman Josephine Soliz said she thinks the industry needs stricter standards but said she wants it to come from the state level.

"They are banking on the poor people that don't have something right now," Soliz said. "They have to pay a bill and have to get the money. When the time comes to repay, they're short on their check."

With Friday's cold and rainy weather closing businesses across town, Soliz said, many Victoria residents could be short on their next paycheck.

"Whoever signed a payday loan last week won't be able to pay it this week," she said. "But you have to have food and be able to pay your bills. You get in a rut."

Under current law, Texas has no limits on fees for "credit access businesses" - a category payday and auto title lenders fall under - as well as no caps on interest rates, loan amount size, refinances or the ability to pay based upon income.

In 35 states, including Texas, the loan can only be repaid as a lump sum.

Colorado lawmakers are working to create a small-dollar loan market that is successful for lenders and borrowers, according to research by The Pew Charitable Trusts.

They replaced a single, unaffordable, lump-sum repayment with a series of installment payments distributed over six months.

While neutral on the issue, Terry Easterwood, who researched lending practices while working on his master's degree in business administration at Texas A&M University, said the industry is no different than credit cards or pawn shops. Just the same, it can become predatory.

"It does service a certain segment of the society," he said. "It's money that's a last resort."

Not only does he consider it to be expensive, Easterwood said, those loans can become a hardship if a borrower cannot pay his or her debt and interest charges mount up.

"People have to look out for their best interests," he said. "It may be in people's best interest for these businesses to be open, but by the same token, it can really drag somebody down if they take out a loan and have a hard time paying it back."

In some states, these lenders left after strict regulations came into place.

"Where the regulations are too aggressive, the businesses exit," Easterwood said. "It's a risky operation because people default on the loans, and sometimes, you're not able to get the money back. You have to write it off as a loss."

Con: Regulations limit business, penalize lenders

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