News Room

April 2, 2007

"In Texas, predatory lending is a plague. Seven of the ten highest sub-prime lending cities are in Texas. Some of these payday loans have a 1153% interest rate after all the fees are added in."

Written by Senator Eliot Shapleigh,


AUSTIN – Tomorrow, April 3, at 9:00 a.m., Senator Eliot Shapleigh will hold a press conference to discuss legislation filed to aid working Texas families caught in the cycle of predatory lending in Texas.  The press conference will be held in the Senate Press Room 2E.9.

"In Texas, predatory lending is a plague.  Seven of the ten highest sub-prime lending cities are in Texas," said Senator Shapleigh.  "Some of these payday loans have a 1153% interest rate after all the fees are added in."

Since July 2005, many predatory lenders in Texas have operated as Consumer Service Organizations (CSO).  Texas' CSO statute was intended to provide guidance for entities that offered legitimate debt repair or counselling services to Texans. As such, the CSO statute is overly broad, and not intended to apply to entities that arrange short-term consumer loans in high volume.

As CSOs, these payday lenders are no longer subject to Texas' small loan law or regulation by the Office of Consumer Credit (OCCC). Although the Office of Consumer Credit is obligated to set rates, payday-CSOs are able to circumvent these rates.  Under the CSO model, the CSO or payday lender charges the consumer with a fee based upon the amount borrowed, and then computes 10% interest on the loan based upon extension of credit made by a third party lender, who has an established relationship with the payday-CSO storefront or Web-based service.

Legislation filed by Senator Shapleigh will collect information on payday lending and curb its abuse in Texas.  The bills include:

·         S.B. 753 (Database)    

As proposed, S.B. 753 establishes a data collection system to require that certain lenders become certified through the OCCC and mandates an annual report to the legislature from entities offering payday loans, or "deferred presentment transactions," including Internet-based organizations and CSOs.                                                          

·         S.B. 856 (CSO Loophole) 

As proposed, S.B. 856 prohibits CSOs from extending credit when the CSO has a relationship with the lender, collects fees on behalf of the lender, or receives an economic interest in the loan revenue, among other prohibitions.     

·         S.B. 857 (CSO Loophole and Third-Party Lenders)    

As proposed, S.B. 857 subjects an entity offering deferred presentment transactions or cash advances to Subtitle B (Loans and Financed Transactions), Title 4, Finance Code, and to rules regarding deferred transactions, and provides that registration as a CSO does not insulate the entity from adhering to that subtitle or any rules or regulations under it, such as the rates set by the Office of the Consumer Credit Commissioner. The bill also prohibits a CSO from extending credit to consumers when the CSO has a relationship with the lender.

 ·         S.B. 858 (Predatory Lending)   

As proposed, S.B. 858 limits annualized interest charges for deferred presentment transactions to 36 percent APR. This bill also prohibits credit services organizations and other entities from offering payday loan fees and interest that exceed 36 percent.                   

 ·         S.B. 855 (Military Payday Loans)

 As proposed, S.B. 855 establishes a 36 percent interest rate cap on certain loans to military borrowers and their dependants. This bill mirrors the recent federal Talent Amendment; however, this bill exempts banks and credit unions, while the federal law does not.

In Texas, in 2002, there were a total of 1,198,840 payday loan transactions with a volume of over $360 million.  Today, 1,388 payday lenders are licensed in the state.

What: Predatory Lending Legislation Press Conference

When: Tuesday, April 3, 2007 at 9:00 a.m.

Where: Senate Press Room       2E.9

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