Senator Eliot Shapleigh - El Paso, Texas

AUSTIN – Tomorrow, Tuesday, April 17, beginning at 9:00 a.m., the Senate Business & Commerce Committee will hear legislation, filed by Senator Eliot Shapleigh, aimed at curbing predatory lending abuses in Texas.  The bills are S.B. 856, S.B. 857, and S.B. 858.

"In Texas, predatory lending is a plague.  Seven of the ten highest sub-prime lending cities are in Texas," said Senator Shapleigh.  "Some of these payday loans have a 1153% interest rate after all the fees are added in."

Since July 2005, many predatory lenders in Texas have operated as Consumer Service Organizations (CSO).  Texas' CSO statute was intended to provide guidance for entities that offered legitimate debt repair or counselling services to Texans. As such, the CSO statute is overly broad, and not intended to apply to entities that arrange short-term consumer loans in high volume.

As CSOs, these payday lenders are no longer subject to Texas' small loan law or regulation by the Office of Consumer Credit (OCCC). Although the Office of Consumer Credit is obligated to set rates, payday-CSOs are able to circumvent these rates.  Under the CSO model, the CSO or payday lender charges the consumer with a fee based upon the amount borrowed, and then computes 10% interest on the loan based upon extension of credit made by a third party lender, who has an established relationship with the payday-CSO storefront or Web-based service.

·         S.B. 856 (CSO Loophole) 

As proposed, S.B. 856 prohibits CSOs from extending credit when the CSO has a relationship with the lender, collects fees on behalf of the lender, or receives an economic interest in the loan revenue, among other prohibitions.        

·         S.B. 857 (CSO Loophole and Third-Party Lenders)    

 
As proposed, S.B. 857 subjects an entity offering deferred presentment transactions or cash advances to Subtitle B (Loans and Financed Transactions), Title 4, Finance Code, and to rules regarding deferred transactions, and provides that registration as a CSO does not insulate the entity from adhering to that subtitle or any rules or regulations under it, such as the rates set by the Office of the Consumer Credit Commissioner. The bill also prohibits a CSO from extending credit to consumers when the CSO has a relationship with the lender.

·         S.B. 858 (Predatory Lending)   

 
As proposed, S.B. 858 limits annualized interest charges for deferred presentment transactions to 36 percent APR. This bill also prohibits credit services organizations and other entities from offering payday loan fees and interest that exceed 36 percent.               

What: S.B. 856, S.B. 857, and S.B. 858 to be heard in Senate Business & Commerce

When: Tuesday, April 17, 2007, beginning at 9:00 a.m.

Where: Betty King Committee Room

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