By Alan Pyke
Predatory lenders thrive in Texas, where regulations are scarce on stores that offer payday advance loans and allow borrowers to put their cars up as collateral for high-cost, short-term credit. But a trio of bills being considered in the legislature would update state law to make it harder for desperate borrowers to wind up trapped in endless loan-renewal cycles when they turn to payday and auto title loans.
The bills would put a length limit on what lenders can offer, prohibiting unpaid loans from being rolled over more than three times. The industry’s profits depend upon borrowers who get stuck in much longer chains of loan renewals that drive the overall interest rate on the borrowing up over 400 percent APR, according to federal data.
Along with the duration cap on re-lending, companies would have to ensure that a customer pays down the principal amount by at least 25 percent each time they refinance a loan. The two provisions together would help tie loan terms to a borrower’s real income and timely ability to repay.
Such rules are unenforceable without having comprehensive data on who is borrowing what from whom. One of the Texas bills would create a state database to track lending. Payday lenders have fought hard against databases in other states like Alabama, lobbying lawmakers and fili