Senator Eliot Shapleigh - El Paso, Texas

AUSTIN, Oct. 31 - State Sen. Eliot Shapleigh has commented on a story in CNN Money about foreclosures rising at a faster rate in McAllen over the last quarter than any other major city.

“That CNN Money story hits home on an emerging issue - access to capital among Hispanics,” said Shapleigh, D-El Paso. “For various reasons - historic distrust of creditors, devaluation, language difficulties, worries about steady pay, redlining/racism - Hispanics have not accessed capital to meet basic needs.”

He said they have also, largely, been unable to realize their potential with timely and strategic education and economic investments.

Click here to read the CNN Money story.

A few years ago Shapleigh produced a map of Texas that ranked subprime lending by census tracks. McAllen was top of the list.

Shapleigh pointed out that historically, Texas has lagged behind the U.S. economy by about a year when it comes to the onset of recessions. That is partly due to the economic mix in the state. So, he said, it was only a matter of time until national foreclosure rates hit certain census tracks in Texas.

Shapleigh said the history of home lending in Texas is an important part of the story.

He pointed out that in order to make sure early Texans would not lose their homes in tough times creditors could not take homes as collateral except for a very limited set of purposes. He said early Texas founders wanted above all to protect the homestead and give those early pioneers who founded the state/nation, from, say, 1830 to 1850, a grubstake to start over when times were tough—and the key to starting over was keeping a family together under one roof. So a creditor could lend only to pay for a home, pay taxes on a home, or build an addition. Imagine that today, Shapleigh said.

“Our history, our values are founded in a government by and for people—and that’s what’s missing today,” Shapleigh said.

An important reason the state’s foreclosure rates have not reached national rates, Shapleigh believes, are a series of reforms of Texas’ home equity laws that former state Rep. Steve Wolens put in place in the 1999 and 2001 sessions when the Dallas Democrat was chair of the House Committee on State Affairs.

Following home equity history that dates back to Spanish law, Wolens set limits on how much people could borrow against home equity and made foreclosure harder on second liens on homesteads, Shapleigh said. Before that, 150 years of Texas law barred any loans on homes except to purchase, pay taxes or build an improvement.

Shapleigh said that historically, Texas’ debtor protection laws were among the most protective in U.S. history – up until the time Rick Perry became governor.

“For years, Perry has made Texas the playpen of predatory lenders. Just take a look at who repeatedly pays his campaign tab to keep him in office. While scores of states have regulated egregious practices like prepayment penalties, loan flipping, and usury, Perry has actively thwarted any reform,” Shapleigh said.

A big part of the problem in Texas, Shapleigh says, is that the legislature has provided predatory lenders with a loophole to escape regulation.

Now, nearly all Texas payday lenders have registered as Credit Services Organizations (CSOs), enabling them through a loophole in state law to no longer be subject to Texas’ small loan law or regulation by the Office of the Consumer Credit Commissioner (OCCC), Shapleigh said.

Because payday lenders operating as CSOs are no longer obligated to submit data to OCCC, Texas regulators have no official data regarding an industry that based on Securities and Exchange Commission (SEC) filings makes at least $3 billion in loans from more than 3,000 storefronts across Texas.

Shapleigh said that as his legislative office has always taken the lead on lending reform, he and his staff have “daily experience with Rick Perry’s legions of lobbyists.”

Shapleigh pointed out that his predatory lending reform package “languished” for nearly 100 days in the Senate Committee on Business. The panel’s chair, state Sen. Troy Fraser, R-Horseshoe Bay, a good friend of Perry's, would not allow the bills to be voted upon until the very last week for hearing bills, thus guaranteeing that no real reform would pass.

SB 244 would have made CSOs subject to interest rates set by the OCCC. SB 248 would have limited interest to 36 percent APR; SB 242 would have required the OCCC to establish a database to which all payday lenders must each week submit information on amount of loans made and rates charged for those loans; and SB 243 would have amended the state’s Finance Code to prohibit CSOs from facilitating credit to consumers if they are affiliated with the lender, collect fees on behalf of the lender or receive an economic interest in the loan revenue, among other prohibitions.

All of these bills were quickly heard and then left pending in Fraser’s committee. More than a score of predatory lending lobbyists watched, knowing that with less than a month left in session, these bills would die, Shapleigh said.

“The room was packed with dozens of lobbyists paid by predators to kill bills. We estimate that predatory lenders spend upwards of $2 million each session on campaign donations and lobbyists to keep what has been the most profitable arena alive,” Shapleigh said.

The hearing was memorable because of statements by state Sen. Wendy Davis, D-Fort Worth, and Shapleigh about how bills are routinely killed by predatory lending lobby. It was also memorable, Shapleigh said, because the Texas Finance Commission, which has jurisdiction over such loans, is now headed by the vice president for governmental affairs for what may be the largest predatory lender in the U.S.

“Here’s the point relative to McAllen,” Shapleigh said. “Bills to solve these systemic issues were killed by one of the most powerful special interests in Austin and so expect foreclosures here to rise as the ‘Texas lag’ spread across regions of the state.”

Shapleigh predicts predatory lending will penetrate more deeply than it already has. “That’s what happening in McAllen. That’s the real story,” he said.