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Press Release February 18, 2000 |
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AUSTIN, TX -- The Texas Finance Commission today initially
authorized rules that will permit "payday" loans in Texas. Payday
loans are short-term loans at high interest rates that require a
borrower to give the lender a personal check to ensure repayment.
These rules for the first time authorize such loans in the state.
Payday loans have come under fire across the nation for their
excessive costs, the coercive nature of lenders holding borrowers'
checks as "security," and because of the high number of rollovers --
or loan renewals -- borrowers typically make. "Payday lending across
the nation is rife with abuse," said Rob Schneider, senior staff
attorney with Consumers Union's Southwest Regional Office. "These
high-cost loans often lead consumers down the path to
bankruptcy."
In testimony before the Finance Commission, Consumers Union asked
for changes to minimize the number of problems for consumers -
specifically, increasing the length of the term for the loans in
order to lower the interest rate consumers pay.
"We are disappointed the Finance Commission chose to move forward
with a loan term of seven days," continued Schneider. "Such a short
term pushes up APRs as high as 570 percent. Authorizing interest
rates that high is unconscionable and unprecedented in Texas."
The APR, or Annual Percentage Rate, is a standard measure of a
loan's cost - used to compare the cost of credit. For example, home
mortgages may have an APR of 8 percent, and a credit card of 18
percent. Because of the short terms of these loans and the costs
authorized for payday loans, borrowers end up paying very high
interest rates.
"We urge the state's top financial regulators to limit the harmful
effects these loans have on consumers by changing the rules before
they are adopted," concluded Schneider. "These rules set precedent
in Texas, and should be as fair to the consumer as possible."
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.
