Classic Car Loans | Loren Steffy: Payday Lending Bills Are Weaklings

In the typical comic strip Popeye, the starved Wimpy ceaselessly searched for a payday lender, someone he would gladly pay Tuesday for a hamburger today.

Unfortunately, there's nothing wimpy about the way the payday lending attention has fought Texas lawmakers' efforts to bring in accord with omission to a of the seamiest areas of finance. Texas is the usually state that has no manners for payday lending.

The great headlines is that lawmakers granted two bills that right away await the governor's signature. The new laws would require state chartering for payday lenders and auto-title lenders - who make short-term loans against the worth of an automobile. They moreover require more in depth disclosures of the loyal - and unreasonable - cost of payday loans.

The bad news: The bills do nothing to residence bigger concerns with payday lending, such as gathering practices and steady extensions that produce large fees is to lenders whilst pushing borrowers serve in to debt.

In fact, the bills do not even bring Texas regulations up to the standards of the Community Financial Services Association of America, the industry's traffic group.

"Those are the payday lenders you must be many fearful of - those who won't even heed with most appropriate practices," mentioned Jim Hawkins, a University of Houston law highbrow who's researched payday lending for 5 years.

The CFSA, for example, calls for tying "rollovers." Many payday lenders require loans be repaid in a pile sum. If the borrower can't do that, the lender allows them to expand the loan for a large fee. The finish outcome may be borrowers who owe many times the leading amount and have small hope of ever profitable off the loan in a singular payment.

CFSA manners say members should confine the number of rollovers to no more than four. It moreover encourages members to offer lengthened remuneration skeleton and urge on consumer shortcoming to confine the chances of borrowers getting held in a debt trap.

Payday and auto-title loans ought to be self-liquidating. That is, the material - the paycheck or the vehicle pretension - ought to resolve the debt in the eventuality of default. The Texas measures offer no such provisions. Lenders can take a borrower's car and still sue them is to residue of the loan.

"It just seems to increase insult to injury," Hawkins said. "It baffles me that Texas lawmakers couldn't obtain that in the bill."

Payday loans are innately predatory. The fascination rates charged idiotically high - 900 percent for a one-week loan, for example. Payday lenders dispute that whilst fascination rates are astronomical, the leading amounts are comparatively small, so a borrower may pay $17.50 to steal $300 for a week.

But payday loans do serve a need, providing short-term money to people with couple of other options. They can serve as a overpass to help a borrower encounter medical expenditure or other emergencies until the next paycheck, for example.

"There may be a utilitarian function," Hawkins said.

The fascination rates are impassioned since the lenders are receiving a large risk, gift money to people who aren't creditworthy. That's precisely why you need manners to ensure simple borrowers comprehend the consequences.

"Since it is so costly, there has to be protections," Hawkins said.

While the bills draft progressing in the legislative session were written to accede with the CFSA guidelines, they were watered down beneath heated lobbying and fixed opponent from a lawmaker in specific - Rep. Gary Elkins, R-Houston. It just so happens Elkins owns a payday lending business.

No consternation a few of the bills' own backers have voiced dissatisfaction in what they were able to pass.

While Texas has at last regulated this underbelly of finance, the results are flattering wimpy.

Loren Steffy is the Chronicle's business columnist. His narration appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com . His blog is at .