Press Release April 28, 2000

Contact: Rafael Ayuso, Consumers Union (512) 477-4431, ext. 114, or cellular (512) 695-4599 Consumers Union's Southwest Regional Office

AUSTIN, TX-The Texas Finance Commission today voted to re-publish rules allowing payday lending in Texas. The rules will appear in the Texas Register-with an opportunity for public comment-and are likely to be finally adopted when the Finance Commission meets on June 16, 2000.

Among the changes to the rules are a limitation on the number of times an "acquisition fee" may be charged on the loans. The acquisition fee is a $10 charge added to the cost of a loan, resulting in dramatic increases in the interest rates on the loans. The $10 acquisition fee is on top of the 48 percent annual interest charged on the loan, resulting in dramatic increases in the interest rates on these short-term, small-dollar loans.

Under the original version, the acquisition fee could be charged every time a loan was made or renewed. The revised version proposes to limit the acquisition fee to one time per month. "The proposed limits on acquisition fees are an improvement," said Rob Schneider, Senior Staff Attorney for the Southwest Regional Office of Consumers Union. "However, the rules still permit extremely high charges for these short-term loans."

Another major change to the proposed rule eliminates language regarding the use of criminal hot check collection on payday loans. Originally, the rules specified that borrowers cannot be subject to criminal hot check collection practices. That language now has been removed. The Finance Commission indicated they would address the use of criminal enforcement in a separate enforcement bulletin.

"The use or threat of hot check collection is one of the most abusive practices in the payday loan industry," continued Schneider. "We are concerned that the change may be misinterpreted by the payday loan industry that criminal hot check enforcement is appropriate in Texas. We do not believe that was the Finance Commission's intent and will work with them to clarify the rules before final adoption."

"As I'm sure the Finance Commission is aware, our Constitution prohibits debtor prisons in Texas," concluded Schneider. "If the Commission is going to authorize payday lending in Texas, they should make it clear that the use or threat of criminal sanctions against borrowers is not acceptable."

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.