Payday loan lenders prepare for a state-wide battle as legislation was recently introduced to the Texas State Senate by Sen. Wendy Davis, D-Fort Worth, that seeks to regulate the short-term lending industry. The industry is composed primarily of payday lenders, title loan lenders, pawn shops, and tax-refund advance lenders.

Upon submitting her legislation, Davis received the support of former House Speaker Tom Craddick, R- Midland, and Rep. Eddie Rodriguez, D-Austin, who each introduced companion measures in the House.  Last time Davis submitted legislation to the Senate, the bill died in committee.

Supporters of Sen. Davis’s bill say the measures will close a loophole that allows short-term lenders to financially benefit by exploiting the  lack of regulation in the industry.  “We must put an end to these egregious fees, and debt collection practices that are destroying the lives of people seeking a short-term remedy to financial challenges,” said Sen. Davis.

Craddick released a statement to the press indicating that he opposes short-term lenders, who he believes, are exploiting the Credit Service Organization Act, which was crafted to monitor credit repair services. Businesses operating under the Credit Service Organization Act are required to pay a $100 statewide registration fee that allows an organization to operate an unlimited number of storefronts, without being subject to licensing, regulatory examinations, or oversight. If Craddick’s measures are approved, short-term lenders will no longer be able to operate under the Credit Service Organization Act.

Response from the lending industry has been universal. While lenders are not opposed to reasonable regulation and oversight, many believe that the measures that are being introduced will make it extraordinarily difficult for many Texans to receive credit. If Davis’s legislation were approved, lenders would be placed into the same category as traditional lenders and banks. This would cap the rates and fees lenders could charge customers. Essentially, pressuring lenders to leave the state.

According to many within the lending industry, short-term loans are fundamentally different than traditional loans and should not be regulated under the same rules as traditional loans. Lenders note that short-term loans typically have a life of two-weeks compared to traditional loans which last anywhere from 1-30 years. In addition, short-term lenders typically lend small loans where as traditional lenders lend much larger loans. According to lenders, these essential differences should be taken into consideration if  Austin is to approve the measures.

As for now, Texas consumers utilize short-term loans more than any other state in the country.

About the Author:

Tim Smithson is a financial writer reporting on legislation involving Houston Texas Payday Loans, as well as the   online payday loans industry at-large.