Bishop's Interview: Bishops call for restrictions on payday lending
Editor: Over the last few years, you have taken a public stand to enforce restrictions on payday lenders in Austin and in our state. Tell us about this issue.
Bishop Vásquez: Yes, last year I joined the effort of a variety of groups urging the Austin City Council to pass a city ordinance to limit where payday lenders could be located and how much money they could lend. Then recently I testified in the Texas Senate on behalf of the Texas Catholic Conference and the 15 Catholic dioceses in Texas in opposition to a bill that was voted out of the Senate Business and Commerce Committee which we believed did not go far enough –– and in some places was even worse than current law –– to regulate payday and auto title lending from the worst usurious practices and from further taking advantage of the poor.
Fortunately, the efforts of the Texas bishops, along with other advocates, to impose reasonable restrictions on the payday and auto title lending industry have been heeded. On the floor of the Texas Senate, a number of much stronger amendments were added to the bill to restrict the charging of high fees and even higher interest rates on short-term loans. In particular, the bill as it passed the Senate contained provisions that require fees be included in calculating the amount of debt to be imposed on borrowers as a percentage of their income; sets a 36 percent APR, sets a 180 day maximum term on all loans, with no refinancing on multi-payment loans and allows cities to enact local ordinances, like the one in Austin.
Even better, the Chairman of the Senate Business and Commerce Committee, John Carona, accepted the amendments and publicly committed that he will hold to those changes in any negotiations with the House in conference committee.
While CSSB 1247, as amended, is not perfect, it establishes a strong first step toward regulating and containing these predatory lending practices. The bill now moves to the House of Representatives, where our advocacy efforts will continue to confront an intense and well-financed campaign by payday lenders and their lobbyists to fight any such restrictions.
Regulation is needed because the exploitation of the poor is only getting worse. A proliferation of payday and auto title lending storefronts have flooded shopping centers and neighborhoods and we are bombarded by the radio and television commercials that promise "easy" and "same-day" cash to entice desperate families in need of help to pay for medical emergencies, groceries, rent or utilities.
Instead of the promise of easy short-term loans, however, financially vulnerable families get trapped in a continuous cycle of debt of fees and interest from which they cannot escape. When combined, these fees and interest often reach annual percentage rates (APR) of more than 500 percent, some have gone as high as 659 percent. According to industry data, Texans paid more than $23 per $100 borrowed for a 14- to 30-day loan –– nearly twice the cap of $10 to $15.50 per $100 that 17 other states require. In 15 other states –– and for certain military borrowers where the federal military rate cap is strictly enforced –– payday loans are capped at 36 percent APR. In Texas, payday lenders circumvent the federal 36 percent rate protection by offering military families loans more than 90-days.
We are not looking to force these lending outfits out of business. We are merely looking to rein in the more egregious practices of bad actors. We are committed to seeing a meaningful reform bill that improves the situation for borrowers in Texas.
Editor: Why is this important to the Catholic Church?
Bishop Vásquez: Our basic Christian principles require us to protect and defend the poor and vulnerable. Our parishes and Catholic Charities witness the high cost of being poor every day as we assist families forced into alarmingly high debt when they take out a payday or auto title loan to cover an unexpected expense. In the teachings of our faith we have many warnings about usury and exploitation of people. Lending practices that, intentionally or unintentionally, take unfair advantage of one’s desperate circumstances are unjust. Catholic social teaching demands respect for the dignity of persons, preferential concern for the poor and vulnerable, and the pursuit of the common good. These principles, coupled with our teaching on economic justice, underscore our questioning of current payday lending practices.
Studies show that minority women are the most affected by these loans when struggling to make ends meet for their families, and whom are more likely to file for bankruptcy, experience eviction and defer medical care because they are in debt to payday lenders. These are the people on whose behalf we are called to speak out because often they have no voice, and we are called to defend the poor and vulnerable from practices that will ultimately undermine their human dignity.
Editor: What is your prayer for this bill as it moves in the legislative process?
Bishop Vásquez: My prayer is that our state legislators would modify this bill and take into account the testimonies that have been given by the Texas Catholic Conference, other religious groups and consumer protection organizations. We need restrictions on these payday lenders and auto title lenders in our state. I pray that we will focus on the needs of the poor and vulnerable throughout our communities, and that we will stand together to protect them from being used or mistreated, especially when it comes to usurious payday lenders and auto tile lenders. I pray that people will express their resolve to increase restrictions on payday lending.