Making Payday Lending Reform A Priority In Texas

If there was one thing on the minds of the people in State Rep. Eddie Rodriguez’s district during the past legislative session, it was payday lending. NewsTaco spoke to Rodriguez recently, who shared his experiences working to bring legislation to address these issues, which in some cases may severely ruin a family’s finances. The nut of the problem is that the payday lending industry in Texas is not regulated, pretty much at all, Rodriguez told us.

“There’s a reason why they are sprouting up like a lot of mushrooms after a rain, and that’s because they are so lucrative.  And they are lucrative because there is no cap on interest rates, and they can roll over a loan to the point where they are making a lot of money off of people,” he said.

Rodriguez’s legislation, which had bipartisan support in the legislature but ultimately did not pass, targeted three primary areas of the payday lending industry. First, it sought to address interest rates which may range from 300-600% — or more. Secondly, it sought to address the number of times unpaid installments of a loan could be rolled over, thus increasing the amount subject to interest. Third, the legislation sought to bring payday lenders up to speed with other lenders in the state, which must pay for each location they open.

In this way a $1,000 loan could end up costing $3,500, for example, or someone who takes out a loan against their car could lose their vehicle. These problems affected Rodriguez’s constituents who were in some cases military spouses, or people just trying to pay their rent. We’ve written about the problems associated with this type of predatory lending before.

This partly explains why in the East Austin neighborhood where Rodriguez lives he said there are four payday lenders in a two-block radius. But, he was adamant that the payday lending industry as a whole does not need to be obliterated, there simply must be some changes made to bring it in line to the way other lending institutions in Texas operate.

Payday lending serves a purpose and should exist, he told us, which helps to explain why some pertinent legislation did pass last session. For example, someone who needs a $600 loan is more likely to qualify more quickly via payday lending than a credit union, but when people are unable to get out from under these loans due to interest or roll-overs, there’s a problem, Rodriguez explained.

In the next legislative session Rodriguez told us he hoped to take up the issue again, but this time via a different route, given that more substantive changes to banking regulations in Texas would be up for review.