In Texas, the solution is simple – CLOSE the CSO LOOPHOLE.
Texas Faith for Fair Lending will support an effort to close the CSO loophole in the next legislative session beginning in January 2011. A bill that simply eliminates the language in the Texas Finance Code that grants to CSOs the ability to help consumers with “obtaining an extension of consumer credit” will close this loophole and force the industry to comply with the consumer lending laws in this state.
Thirty-eight states have a CSO act on the books. Twelve of these states prohibit the CSOs from arranging credit. Texas can do the same. We are calling on the legislature to close the loophole, promote fairness, and better protect our fellow citizens.
The goal of this effort is not to shut down these businesses. We simply ask that they operate fairly and openly. To the average borrower they look and act like a lender. They should then be regulated like a lender. We are not interested in setting up an entirely new regulatory system. The necessary regulations have been approved by the legislature and already exist in our law.
These existing regulations are not overly harsh or punitive. They don’t seek to destroy the market for small-dollar loans. The rates for a 14 day, “deferred presentment transaction” loan set by the Texas Office of Consumer Credit Commissioner (OCCC) as required by the Texas Finance Code are generous – between 100% and 200% APR.
A National Trend
Across the country there has been a movement to crack-down on these predatory lenders. Sixteen states and the District of Columbia have passed reforms that cap interest rates and fees. Many have set the rate at 36% APR, limited the number of times a loan may be rolled over, limited the number of loans a borrower may take out in a year and called for strict reporting and data collection requirements. These states include Arizona, North Carolina, Ohio, West Virginia and our neighbor, Arkansas. The reform we are seeking, closing the loophole, is modest by comparison.
In October 2006 Congress passed reforms aimed at active members of our military and their families who have been particularly victimized by predatory lending. The new law that took effect in 2007 incorporated many of the above regulations including a rate cap or 36%APR. It is unclear whether any state agency has accepted the responsibility of enforcing this law in Texas.
We understand that personal responsibility plays a big role in helping folks avoid the debt trap caused by payday and auto title loans. People need to be given the tools to understand the ramifications of these loans, and need to be educated so that can make wise decisions.
Churches and other houses of worship can be a particularly powerful voice and a source of financial education. The principal of stewardship of resources that we have been blessed with is one that is shared among many faiths. There are wonderful tools available that faith communities can use to educate their members and their surrounding community.
A good place to start is with the Money Smart financial education program from the FDIC. This curriculum, available in both English and Spanish, would work well in a church setting. For more information see the link in our resources section.