AUSTIN - A shareholder with the law firm that used to employ Jack Abramoff was highly offended that the disgraced former political lobbyist was mentioned at a legislative hearing.

J. Scott Sheehan, a Houston-based attorney with Greenberg Traurig, was defending the legitimacy and business practices of Credit Services Organizations (CSOs) at a hearing of the Senate Business and Commerce Committee.

Sen. Eliot Shapleigh, D-El Paso, was introducing a raft of bills that seeks to strengthen regulatory oversight of CSOs. After members of the committee had asked Sheehan a series of questions, it was Shapleigh’s turn.

“Greenberg Traurig, have they been in the news recently?” Shapleigh asked.

“Um, sir, are you going to cast aspersions on my law firm?” Sheehan replied.

“I just want to know,” Shapleigh countered.

“No, I’m asking you sir,” Sheehan said, getting visibly angry.

“I’m asking the questions here. Does Jack Abramoff still work for your firm?” Shapleigh continued.

“Absolutely not,” Sheehan shouted. “And I’m offended by the question, that’s disgraceful of you and I will talk to you privately afterwards.”

Shapleigh concluded the spat by saying: “That might be but I just want the answer, yes or no.”

Sen. Chris Harris then said: “Come on, gentlemen, let’s get back to the issue at hand.”

Sen. Leticia Van de Putte, D-San Antonio, also tried to calm the situation, asking Sheehan to take a deep breath. “I just don’t want you to stroke out on me, you are turning red,” she said.

Abramoff, who used to work for Greenberg Traurig, pleaded guilty last year to defrauding American Indian tribes, including the Tigua Indian Tribe of El Paso, and to corrupting public officials. He was sentenced to five years and ten months in prison and ordered to pay more than $21 million in restitution.

Shapleigh later told Sheehan he did not mean to offend him. In turn, Sheehan said he respected Shapleigh. The spat was the liveliest part of an interesting dialogue on CSOs and whether they are circumventing the law to exploit those in desperate need of short-term finance.

Asked later what he made of the spat, Shapleigh told the Guardian: “Lenders have more lobbyists in this building than TXU. When you get 1,153 percent interest on short-term predatory loans, you can see why.”

Shapleigh said predatory lending was particularly bad on the border and in minority communities.

Payday loans are short-term loans with annualized interest rates that range from 300 percent to 1,000 percent APR. Shapleigh pointed out that payday lending products have come under recent scrutiny by consumer advocates, federal regulators, and the U.S. military.

Currently, payday lending operates in 37 states, with a patchwork of state laws and regulations that govern their use. Because of federal action, there have been significant changes in the payday lending industry.

Shapleigh pointed out that prior to this year, payday lending in Texas operated through the “rent-a-bank” model, in which payday firms partnered with out-of-state banks to make loans to consumers. He said this scheme enabled Texas payday lenders to avoid state usury limits and rate limits set by the Office of Consumer Credit Commissioner (OCCC).

Under this arrangement, Texas payday lenders claimed the status of “brokers” and assigned partner banks as the lenders.

Since 2005, however, the Federal Deposit Insurance Commission, the primary regulatory agency for federally chartered banks, has effectively ended this practice, Shapleigh said. In response, nearly all payday lenders in Texas have registered as CSOs.

“This move enabled payday lenders to avoid even limited regulation by the OCCC,” Shapleigh said. “This switch also enabled some lenders to turn in their OCCC licenses. More importantly, payday lenders were no longer obligated to submit data to OCCC and, as a result, Texas regulators have no official data regarding an industry that conducts over two million transactions approaching $1 billion per year.”

SB 753, authored by Shapleigh, would establish a database collection system that requires lenders to become OCCC-certified. It also mandates that an annual report be provided to the legislature.

Sheehan said there was another side to the story. He said the CSO model complies with Texas law and is good public policy.

“I look around Texans and I think that the Credit Service Organizations are one of the most successful business models that we have for retail centers in Texas,” Sheehan told the committee. “They are paying taxes and they are employing people. This is a good business model that is helping the economy of Texas.”

Sheehan said CSOs were certainly no circumventing the law. He said the business model was a new concept and that CSOs are not lenders at all.

“A CSO is a bonded, registered, credit service organization. It advertisers for people that need loans, it arranges a loan for them with a third party lender,” Sheehan said. “It’s not a lender. It’s similar to a broker.”

Sen. Troy Fraser, R-Horseshoe Bay, chairman of the Business and Commerce Committee, left Shapleigh’s bills pending. Asked by Shapleigh when the bills might come up for a vote, Fraser said his normal policy was to wait until a bill’s author has the five votes necessary to pass any legislation.