Payday loan regulation passed by Texas Senate. / Image: swanksalot/Flickr/CC BY-SA

Two measures designed to regulate the payday lending industry were passed by the Texas Senate for the first time on Monday. Reactions to the legislation have been mixed; supporters call it is a good start, and critics say it does not go far enough.

Bills are both passed by large margins

Both bills, 2592 and 2594, were the result of negotiations between the payday loan industry and consumer groups.  The bills passed the Senate vote by a large margins.  Bill 2592 passed 27-3 and 2594 passed 28-4.

New bills require fee disclosure

The legislation, proposed by Sen. John Carona, R-Dallas, requires short-term lenders to obtain a state license and to disclose information about their fees to their customers.

Fees remain unregulated

Those fees, however, will remain unregulated. “What we present to you today,” said Sen. Corona, “is the limit of what we could do. I leave this session disappointed that we’re not able to do more.”

Critics want the ‘cycle of debt’ to be addressed

Some say the bills are merely token efforts, claiming that the proposed legislation does not address what has been called “the cycle of debt.”  This refers to borrowers who extend their short-term loans multiple times, leading to heavier fees.

Previous bill

A previous bill written by Sen. Wendy Davis, D-Fort Worth, and by Sen. Royce West, D-Dallas, called for much tougher regulation.  That bill required a cap on fees, but never made it to the floor for debate.

Federal law requires fee caps at 36 percent a year for military families.  That limit, however, has not been enforced in Texas.

Davis calls legislation ‘disappointing’

Davis claims the legislation was diluted by lobbyist for the payday loan industry.  “It’s very disappointing,” she said. “It makes you lose your faith in democracy.”

House still needs to approve the bills

The House must approve Senate changes before the measures can go to the governor.

Sources

American-Statesman

Financial Blog

Seek4News

Social crusaders want the payday advance industry regulated, even out of business. However, a lot of the industry already regulates itself. Image from Wikimedia Commons.

Many critics of the payday advance industry have opined that the industry needs greater regulatory control. Numerous states have put interest rate caps, effectively price ceilings, in place which make it hard for loan lenders to make a living. How many payday loans a person can borrow has also been limited by statutes. The calls for new laws rarely address how much self-regulation the industry already does.

Case for regulating payday advance loans

There have been numerous campaigns and calls for the payday advance loans industry to be regulated. Some people want cash advances as a product regulated completely out of business. To be fair, there are “bad apples” in the industry. In fact, a debt collector for a payday loan lending outfit in Oklahoma is being sued for violating the Fair Debt Collection Practices Act by impersonating a government official, according to Consumer Affairs. It would seem that there should be strong laws set in place against short term loan lenders so that they cannot abuse people with impunity. However, the payday advance industry has been self-regulating itself for years.

Best Practices

There are trade organizations to which payday loan lenders belong at local, state and national levels. Many of these organizations set a code of ethics for themselves, known as Best Practices. The Best Practices are often similar if not the same across trade organizations. For instance, there is disclosing rates and fees up front to customers. Practices also will limit the number of “roll overs,” or renewal of loans to customers if there is a pattern of repeat borrowing. They also mandate adherence to the law regarding collections, and encourage customers to report lenders not in compliance with Best Practices to both the organization a lender belongs to, and also to authorities.

Look for membership

A potential payday advance loan customer should check out a prospective lender, and see if they are affiliated with any such organization. There should be a seal of membership in a payday loan store or on a website. Look for members of the Online Lenders Alliance, Community Financial Service Association of America or Financial Service Centers of America. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

New regulations in New York ensure that your mortgage officer has a license. Image: Flickr/featherdtar

In New York state, and soon in many other states, officers that offer personal loan products such as mortgages are now subject to new regulations. These regulations are intended to help customers in need of large or small loans protect themselves from unscrupulous agents. These licensing laws were passed in 2006 in New York, and similar ones were passed federally in 2008.

New York state loan licensing

The newest regulations in New York state are intended to regulate not cash advance lenders that offer mortgages, but their agents. As of July 31, anyone who wants to work as a mortgage loan officer must be individually licensed. In order to get this license, an agent must complete a 20 hour training course. Applicants also must pass tests, criminal background checks and financial background checks. Similar laws are set to take effect all over the country in the next few years.

Addressing loan job jumpers

The New York law and the Secure and Fair Enforcement for Mortgage Licensing federal law passed in 2008 address a specific problem. Many of the bad loans and fast cash advance products that contributed to the economic downfall came from a unique subset of lenders. While mortgage businesses were licensed, the lenders who worked at them were not required to be. This meant that some mortgage loan officers would make bad loans or no credit loans, push unneeded loan products, then jump from job to job when they got fired.

Questions about licensing requirements

While the reform that has been implemented as of July 31 addresses many issues in the mortgage business, some are questioning the requirements. Most say that the required 20 hours of training simply isn’t enough. In most states, licensed professions require a minimum of 75 hours or more of training. Either way, the Nationwide Mortgage Licensing System & Registry is now providing a search for borrowers to identify whether they are working with a licensed mortgage lender.