Senator Eliot Shapleigh - El Paso, Texas

AUSTIN - Predatory lending, an industry that has long hurt entire communities near the border with Mexico and ethnic minorities living in large metropolitan areas like Dallas/Fort Worth and Houston, is thriving in other areas of the state, including some West Texas counties.

That is the conclusion of a report state senators Eliot Shapleigh of El Paso, Wendy Davis of Fort Worth and Rodney Ellis of Houston have released.

"Make no mistake," Shapleigh said at a news conference. "The payday loans are part of that toxic package."

The lawmaker, who also unveiled details of some bills he filed to stop predatory lending, was referring to the real estate loans and other type of high-risk loans that caused the collapse of insurance giant AIG and some of the largest banks and mortgage companies in the nation.

And these types of high-interest, short-time loans - carrying annual interest rates of 700 percent - are hitting particularly hard in some rural counties this time of year when people are filing their federal income tax reports, according to a chart Shapleigh and his staff prepared.

The 25 Texas counties with the highest percentage of refund anticipation loans - people borrowing against their federal income tax refund when they file - are all rural. The list includes Crosby, Floyd, Dawson, Howard, Lamb, Nolan and Terry counties.

RALs, the acronym for such loans, "are misleading advertisement during the tax season which is upon us," Ellis said.

"In times like these, Texas families are more susceptible than ever" to get trapped in payday loans they cannot afford to take in the first place, Davis said. "Over 91 percent of the business is from borrowers who come to them five or more times a year."

Shapleigh and Davis said that a series of bills they filed would outlaw predatory lending or at least put a cap of 36 percent to such loans.

Shapleigh said he hopes that through legislation the predatory lending industry can be outlawed because other state officials, particularly Texas Attorney General Greg Abbott, have failed Texans on this issue.

"Frankly, Attorney General Abbott is part of the problem," Shapleigh said. "Attorney General Abbott in direct meetings with him was asked when he got to Austin what are you going to do about payday lending and subprime lending?

"He has never effectively led on this issue. His only proposal this session is to extend the foreclosure period in Texas from 30 days to 45 days," Shapleigh charged. "That is no solution to the thousands of families that are going to face foreclosures in the days to come."

Abbott spokesman Jerry Strickland said, however, it is the Texas Legislature, not the Texas attorney general, that can enact new laws, including those that govern mortgage and payday lending.

"If Senator Shapleigh believes current payday lending laws need to be strengthened or otherwise changed, then he needs to work constructively with (the) Legislature to pass new laws," Strickland said. "Under the current legal structure, the attorney general has aggressively pursued lenders' unlawful conduct."

For its part, the lending industry was highly critical of Shapleigh and Davis.

"It's unfortunate in these tough economic times that senators Eliot Shapleigh and Wendy Davis are using inflammatory, shameless and blatantly incorrect rhetoric to try to sway public opinion about short-term loan services in Texas," said Alex Vaughn, president of the Consumer Service Alliance of Texas.

"The fact is small, short-term loan companies are regulated," Vaughn said. "They are subject to the Texas Finance Code, the Texas Constitution and no fewer than seven other laws and regulations. They are subject to the Texas Deceptive Trade Practices Act that imposes treble damages for wrongdoing."

Shapleigh said that although he has introduced this type of legislation in past sessions, he is confident that because of the current economic crisis, when there is more awareness of how serious the problem is, some of the bills may pass this time.

Other legislators agreed.

"I think the Legislature may be in the mood this time," said Rep. David Swinford, R-Dumas. "Predatory lending is hurting a lot of people."

The Legislature is morally obligated to address the issue of predatory lending because it helped to create it, said Rep. Joe Heflin, D-Crosbyton, whose House District 85 includes four counties with the highest percentage of RALs.

"Unfortunately, when we did away with constitutional amendments ... on 10 percent limit on interest rates and the interest laws were taken away we opened the door for this type of lending practice," Heflin said. "I think we in the Legislature should point the finger at us as a guilty party that allowed this to happen.

"(But) I think we can undo it," he added. "It may be hard to put the genie back in the bottle, but we can work on making it a whole lot better. We need to protect those poor people to make sure they don't fall prey to these lending practices."