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Press Release April 18, 2001 |
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Dangerous "payday"
lending bill goes to Senate floor
S.B. 471 increases interest rates, weakens consumer protections
AUSTIN, TX - Consumers Union and the Texas office of the American Association
of Retired Persons today called upon senators to oppose legislation that could
drive interest rates on short-term loans as high as 700 percent.
In a joint letter, the two organizations warned senators of the dangers posed by S.B. 471, slated to come to the Senate floor perhaps as early as Thursday or Friday, to consumers.
"S.B. 471 would increase interest rates and reduce consumer protections for these loans by weakening the standards in existing rules," CU Senior Staff Attorney Rob Schneider and AARP Texas State Legislative Chair Bonnie Shelley wrote.
Payday loans-short-term loans in which the borrower uses a personal check as collateral-are currently authorized under Texas Finance Commission regulations. Current rules allow an already high interest rate. The bill would allow rates to soar several hundred percent higher.
S.B. 471 also weakens protections against loan "rollovers" and eliminates the requirement that a lender assess a borrower's ability to repay the loan, as current rules require.
Schneider and Shelley warned senators to dismiss the pro-S.B. 471 argument that the bill will serve a necessary function by preventing out-of-state lenders from "exporting" their high interest rates into Texas.
"Whether Texas has rules or a law in place, lenders that wish to export rates into Texas will be free to do so. S.B. 471 does not address the problem of rate exportation," they wrote. "S.B. 471 will hurt consumers and is unnecessary, given Texas' rules already in place. We urge you to vote against the bill."
The House companion to S.B. 471 --
H.B. 1366 -- awaits action in the House Financial Institutions committee.
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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.
