Regulation of Small Dollar
Loans in Texas:
A Free (-for-all) Market
Payday Loan Borrowers
38 years old, with incomes of $40,000
87% have a high school education.
• According to the industry, top reasons consumers
use payday lenders are: location, customer service,
convenience, speed, and confidentiality
• At least half take out 6 loans or more per year.
Payday Lending in Texas
• 176 payday lenders in Texas, 2484 locations. 7
largest payday lenders have 1827 registered
• Average loan amounts: $300 - $500
Average repayment period: 18 days Repayment
periods range from 7 days to 45 days.
• Loan fees: $15-$22 per $100
Two-week loan APR: 390% -572%.
• $2 billion market with over 2 million loans.
Major Problems for Consumers
• Loans are structured to be more profitable when
consumers cannot repay
• High effective interest rates
• Fee based lending with no principal reduction
• Term of the loans is often too short for full
• Loans rollovers create a cycle of debt
Current Texas Laws
• Texas Finance Code Ch. 342: $10 fee plus 48%
interest, an APR of 136% on a two-week $300 loan.
• § 342.008 ATTEMPT TO EVADE LAW. A person
who is a party to a deferred presentment transaction
may not evade the application of this subtitle or a
rule adopted under this subchapter by use of any
device, subterfuge, or pretense. Characterization of a
required fee as a purchase of a good or service in
connection with a deferred presentment transaction
is a device, subterfuge, or pretense for the purposes
of this section.
• Credit Service Organization Act—no licensing, no
state oversight, no limit on fees charged
Few Texas Consumer Complaints
• Since July 2004, the Office of the Consumer Credit
Commissioner received 180 complaints and 69 were
received through the Better Business Bureau.
46% included problems associated with debt collection
54% included complaints about charges or service tied to
the loan transaction.
• Why are there so few complaints?
Consumers accept such loan terms as “normal”
There are no better options
There is limited consumer complaint infrastructure in
Federal Action and Approaches
from Other States
• 36% Federal lending cap on all loans to the military and military
• 11 states and the District of Columbia have effectively prohibited
payday lending, largely through interest rate caps.
• Limits on rates, rollovers, number of loans, waiting period
between loans and repayment plans.
• Loan value limits based on income.
• State of Michigan, state agency action closed the CSO loophole;
in Florida, recent successful action by the Florida Office of
Financial Regulation, against Austin-based EZCorp. could do the
Breaking the Cycle of Debt
• Consumers need short-term small loans
• Consumer need affordable loan options
• We must have fairly priced market-based
tel: 512-473-2800 x104