Texas Senate Passes Surprisingly Tough Payday Loan Reform

After a dramatic false start on Thursday, the big payday loan reform bill—tediously-negotiated by Sen. John Carona (R-Dallas)—easily cleared the Senate. But not before senators agreed to changes that would more or less kill the payday and auto-title industry in Texas.  You read that right: The Texas Senate ultimately voted for legislation that would shut down most of the payday and title lending stores in Texas.

Over the course of 15 amendments, Senate Bill 1247 went from milquetoast to something that Ralph Nader would lavish with praise. The trouble is that it may give the payday lending industry, with its legions of high-paid lobbyists, an opening to bring the whole thing down.

By the end, a beleaguered-looking Carona was calling his bill an “ugly baby.”

“I just want to go home and feed my cat,” said Carona.

The upper chamber ignored Carona’s warnings that anything that went beyond his tediously-negotiated modest set of new regulations would jeopardize the bill.

First, Sen. John Whitmire (D-Houston) got into his twitchy bulldog mode, insisting that Carona consider removing a provision that pre-empts city payday regulations. (Austin, Dallas, El Paso and San Antonio have passed near-identical ordinances setting limits on the number and size of loans consumers can enter into. Houston has enacted a much-weaker ordinance.)

“[The industry] will continue to rape and rob the people of Houston,” he said, if cities aren’t allowed to set their own rules. Carona explained that pre-emption is paramount because without it, the lenders will move to kill the legislation.

Removing the pre-emption clause “has the effect of not leaving us any hope of passing” the bill, Carona said. “i’ve come to believe that [passing nothing] is your real objective here.”

But the Senate waved Whitmire’s amendment through on a 21-9 vote. Notably, a stampede of payday lobbyists left the Senate gallery at that point.

By an 18-12 vote, the Senate approved an amendment that would cap rates at 36 percent APR, a move that would probably shut down the payday and title loan business in Texas. Sen. Wendy Davis (D-Fort Worth), who has made payday loan reform one of her top priorities, also secured an amendment to close the loophole that allows these lenders to charge unlimited fees.

In one sense, it’s remarkable that one half of the Legislature—plied with millions in campaign contributions from the industry—passed such a strong, pro-consumer bill. On the other hand, Carona’s admonitions about the limits of the possible probably still apply. The action now moves to the House… and wherever else the hired guns do their business.