3 June, 2003

The Honorable Rick Perry
Governor's Office
PO Box 12428
Austin, TX 78711

Dear Governor Perry:

We respectfully request your veto of HB 1380, which will increase the costs of borrowing to Texas consumers on high-cost loans.

HB 1380 allows lenders to include a number of insurance and non-insurance "add-ons" to loans made by finance companies. We know from reviewing the sale of add-ons in the auto financing industry that these products are overpriced, full of loopholes, and hard-sold to borrowers. Particularly for finance company loans, borrowers may believe they have little choice but to buy the products in order to secure the loan.

The products authorized by HB 1380 include life, disability, and accident insurance as well as non-insurance products like club memberships, service contracts, and security plans. For many of these products there is simply no meaningful oversight - the contracts are likely to be full of "gotchas" and the prices may drastically exceed their value. Consumers in need of such products would be far better off financing them using a credit card rather than the higher interest rates - topping 30 percent - allowed under this section of the Finance Code.

Contrast HB 1380 with SB 1429, which we did not oppose. SB 1429 strictly limits the kinds of additional products that can be financed, requires the cost of the products to be reasonable, and adds the products onto loans with interest rates below 18 percent.

It is difficult to estimate how much additional cost Texas consumers will pay because of HB 1380. However, we estimate that service contract additions to vehicle loans overcharge Texans about $1 billion annually. There are fewer finance company loan transactions, but the interest rates are substantially higher than auto loans. It is likely that HB 1380 will result in overcharges for Texas consumers of hundreds of millions of dollars annually.

You wisely vetoed legislation last session, HB 2139, which allowed more unregulated add-ons to motor vehicle loans. HB 1380 allows many more kinds of unregulated add-ons and at interest rates that are far higher than those for motor vehicle loans. HB 1380 deserves your veto.

Sincerely,