In Texas, there are more than 3,500 payday lenders. Two new pieces of legislation — Texas SB 253 and Texas HB 410 — have been introduced as a way to limit this short-term lending. Both of these bills seek to redefine “Credit Service Organization” to exclude payday loan stores.
The Credit Service Organization exemption
Texas law currently limits consumer credit and financial institutions. Payday loan stores currently operate under the name umbrella of a “Credit Service Organization.” This is because payday loan stores offer a form of short-term credit that is available to those without a credit history or with a bad credit history. This particular exemption does not make a differentiation between check-cashing services — which provide services to those without banks — and payday loans — which provide services to those who don’t have access to the credit they need.
Effect of Texas payday loan regulation
The two bills that have been introduced in the Texas legislature re-define “Credit Service Organization” to specifically exclude payday loan stores. This would limit the fees that these stores can charge based on an annual percentage rate. Industry estimates are that somewhere between 3,000 and 6,000 of the 7,800 employees at payday loan stores in Texas would lose their jobs. It would also reduce the amount of available credit to customers who use payday loan stores.
Welcoming additional oversight
Though Texas payday loan stores and lenders have come out against Texas SB 253 and HB 410, they have said that they do welcome further regulation and oversight. Short-term credit available through payday loan stores is distinct, as it is a style of consumer credit that banks, credit cards and credit unions simply do not usually offer. The payday loan industry claims that it provides a useful and needed service. Lawmakers express concern over the interest rates, which usually clock in at less than a credit card cash advance.