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Fixing a Broken Market

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A loan that promotes a cycle of success:

  • Is fairly and reasonably priced;

  • Is structured for successful repayment in the original loan term;

  • Includes a meaningful assessment of borrower’s ability to repay without needing to re-borrow;

  • Improves borrower’s credit score with positive repayment history; and

  • Offers transparency in advertising, disclosures, and contracts.

Fair transactions guided by these basic standards promote borrower and lender success and support a healthy Texas economy.

Texans can have both access to credit and fair market pricing for payday and auto title loans.

The proof: just look at other states. 

Seventeen states cap rates for payday and auto title loans at 36% APR or less. In states where payday and auto title loan businesses choose not to operate, studies show that people access lower-cost credit and do not seek out these high-cost loans. According to a 2013 national survey conducted by the Pew Charitable Trusts, just five out of every 100 would-be borrowers in states without any payday or auto title storefronts chose to take out payday loans online or by other means.

 

Most other states address the high cost of credit and the cycle of debt through limitations on the rates, loan size and rollovers. The payday and auto title industry offers loans in other states at lower rates and with smaller fees

Currently, payday and auto title loans

cost more in Texas than almost anywhere else in the country. 

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Texas: Same Products, Higher Fees

Texas is one of only a handful of states with no cap on payday and auto title loan charges. These businesses are getting a free pass compared to other financial service providers. Texans pay about double in fees compared to borrowers in other high-rate states for a two-week $500 payday loan.

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Texas Cities Take Action

With no state reforms, local cities have taken action. Forty-six Texas cities have passed the unified ordinance, designed to help stop the cycle of debt. These ordinances address the cycle of debt by doing the following:

  • Limiting the size of payday and auto title loans based on borrower income,

  • Limiting renewals, or rollovers, of payday and auto title loans, and

  • Requiring each payment to reduce the loan principal by at least 25%.

46 Cities

have passed the unified local ordinance to rein in the most harmful payday and auto title lending practices. 

10 million Texans

are covered by this ordinance.

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Cities With Ordinances

  • Amarillo

  • Angleton

  • Arlington

  • Austin

  • Balcones Heights

  • Baytown

  • Bedford

  • Bellaire

  • Browsville

  • Bryan

  • Canyon

  • Cedar Hill

  • College Station

  • Corpus Christi

  • Dallas

  • Denton

  • DeSoto

  • Dickinson

  • El Paso

  • Euless

  • Flower Mound

  • Forth Worth

  • Galveston

  • Grand Prairie

  • Harker Heights

  • Houston

  • Hurst

  • Killeen

  • Longview

  • Mesquite

  • Midland

  • Pharr

  • San Angelo

  • San Antonio

  • Seguin

  • Socorro

  • Somerset

  • South Houston

  • Sulphur Springs

  • Temple

  • Universal City

  • Waco

  • Weatherford

  • West University

  • Willis


1. The simplest solution is to adopt a 36% annual percentage rate cap on total charges in order to ensure that the loans are fair and affordable.

2. Adopt, as state law, the cycle of debt protections that these city ordinances offer:

  • Limiting the size of the loan based on borrower income,

  • Limiting all loans to a maximum of four payments with no additional refinances, and

  • Requiring that each payment reduce the total amount owed by 25% to ensure the loan and all fees are paid in full after four payments.

Policy Solutions