By Rose Thayer
Fort Hood Herald
A new bill in the Texas House could shut down a statewide $4 billion industry with 3,500 registered storefronts if passed, but officials who support the measure say this would be good news for consumers.
House Bill 410, authored by Rep. Tom Craddick, R-Midland, and joint-authored by Rep. Sid Miller, R-Stephenville, would no longer allow payday loan offices to lend in Texas.
If passed, the bill would block the ability of credit services organizations - which are loan offices that lend payday loans, car title loans and other small, short-term cash loans - to "obtain an extension of consumer credit for a consumer or assist a consumer in obtaining an extension of credit."
According to the Federal Deposit Insurance Corporation, payday loans are lent to borrowers on the promise to repay out of their next paycheck or deposit of funds. These loans typically have high fees and are often rolled over repeatedly, making the annual percentage rate extremely high.
Craddick and other critics of the industry prefer to use to the term "predatory lending." They say these lenders take advantage of people in desperate situations.
If the borrower is unable to pay back the loan within the time-frame, typically two weeks, they can renew or "roll" the loan for a fee.
According to the Texas Business Review from Bureau of Business Research at the University of Texas, the average borrower ends up paying about $840 for a $300 loan. Credit services organization companies in Texas constitute a $4 billion a year industry, the review states.
"It's the renewal and fees that get people, not the rate. They fee you to death, and it keeps building up," Craddick said.
The Better Business Bureau backs the effort to further regulate payday lenders.
"I think it's good for Texans and good for consumers," said Richard Kitterman, executive director of the Centroplex Better Business Bureau. "It will force people to consider more reasonable options, or maybe going without."
The bureau has only received seven complaints against payday lenders in Bell County in the past year, but Kitterman said they can't always expect payday loan users will file formal complaints, because they may be embarrassed. He added that one complaint filer repeatedly said in the complaint how foolish it was in the first place.
"People really need to consider, what's the impact?" he said. "It can quickly go from an uncomfortable situation to unbearable."
No other options
But Rob Norcross, spokesperson for the Consumer Service Alliance of Texas, the state trade association for credit services organizations, said there really aren't other options for consumers who seek these kinds of loans.
"Sometimes it's because their credit is dinged up, and sometimes the amount needed is so small banks don't make those loans," he said. "It's either one of these loans, or missing a bill with late charges that are almost always more expensive."
Norcross said the reason the annual percentage rates of these loans look so high to outsiders is because they are only meant to be viewed in the short-term. He gave the example of a borrower who takes out $100 with the intent to pay it back in two weeks, plus a $15 fee. That should be a 15 percent interest rate. But the government looks at percentage rates annually, so that 15 percent must be multiplied by 26, the number of two-week periods in a year. So the APR comes out to be 400 percent.
"There's a misconception that our customers don't know what they are doing or are being tricked," Norcross said.
He said the Consumer Service Alliance of Texas' in-house statistics show credit services organization customers are younger than the average Texan, more educated than the average Texan and 45 percent own their own home.
"They very carefully analyze their options and are choosing the lowest cost option," he said.
Miller's statistics show a very different story. He said the average borrower is in their 20s and 30s, a high percentage are African-American and there are a large number of single mothers.
"I don't mind them being in business, but I am against predatory lending. A pet peeve of mine is when they prey on soldiers," Miller said.
In Central Texas, of the more than 40 credit services organizations registered with the Texas Secretary of State's office, 18 are within three miles of Fort Hood's gates.
In 2006, a report from the Defense Department showed that military personnel and their families were especially vulnerable to payday loans and that these loans impact military readiness and troop morale.
For this reason, Congress passed the Military Lending Act in 2007, putting a cap on all loans to active-duty military members and their dependents at 36 percent.
To get around this, some credit services organizations created installment plan loans that fit within those guidelines. Other stores, such as Check-n-Go in Killeen, quit lending to them altogether.
Norcross said the proposed bill "takes away legal authority for stores to stay in business."
If businesses close that would mean jobs would end as well. Norcross said the association's members have 8,000 full-time employees in the state.
As far as those who would lose their jobs if the bill is passed, Kitterman o said, "Anytime anybody loses a job, it's a sad situation. I'm not sure that the impact would be noticeable."
John Rabenold, spokesperson for the company Check-n-Go, based out of Cincinnati, Ohio, said the company has three locations in the Killeen area.
"Hopefully, we can find some middle ground that will provide for our employees and our customers in Texas. We have no problem with good, sound regulation, but House Bill 410 isn't that," he said.
But Craddick is confident of the bill's success. He said that unlike bills that have failed in the past, this year's has bi-partisan support, as well as community support. The Texas Baptist Organization and the Texas Christian Life Commission have both extended their approval.
"A lot of groups working on this, and as the constituents of Texas become more aware," Craddick said. "We are seeing a swirl of grassroots help that we've never had before on this issue."