The state of Texas has long held a reputation for personal freedom, low taxes, and minding one’s own business. Texas attorney Greg Abbot recently ran this ad in The New York Times, “Wanted: Law abiding New York gun owners looking for lower taxes and greater opportunity.”
The Facebook landing page reads, “We have right to work laws and a reasonable regulatory environment. Texas has created more than 275,000 jobs in the last year alone! And we’ll fight like hell to protect your rights. You’ll also get to keep more of what you earn and use some of that extra money to buy more ammo.”
So, all appears well in Texas. Except Atty General Abbot has not managed to enlighten Texas Senator John Carona regarding the “reasonable regulatory environment” nor the “jobs” theme!
SB 1247, introduced by Senator Carona is perhaps the most draconian, job killing, consumer coddling, Texas legislation in a long, long time.
(As you read this, remember that the state of Texas already has strong small dollar loan consumer protection legislation in place!)
In a nutshell, here is SB 1247:
*18 pages of gobbly-gook. No consumer, business operator, regulator or court will have a clue as to how 80% of this bill is, or will be be, interpreted and enforced. No small business person in their right mind will risk the fines and compliance burden SB 1247 would implement. That being said, uncertainty will drive Texas entrepreneurs and consumer small dollar loan choices underground or out of existence.
*A consumer may only have 1 loan out with a CAB. What the…! How does this work? Does the Senator plan to block all access to the Internet? China, North Korea and Iran cannot even achieve this. Internet lending transaction volume is growing 30% per year. Why so slow :o) Because in 30+ states, borrowers can still get a loan from their local business man. You know, that business woman who leases office space, employs Texans; Texans who pay taxes, buy McDonald’s burgers, purchase homes and rent apartments.
Will the Senator setup road blocks at all the Texas state-lines and search all vehicles for payday and car title loan contracts?
We all know the Senator’s ultimate, longer-term strategy is to employ a state data base as implemented in Florida, Oklahoma, etc. Based on real world evidence, state data bases are not the panacea they were once thought to be. You want a $500 loan? Grab your phone, enter “Austin payday loan,” click the link, fill out the application and the $500 will be in your account in the morning. (Hell, with today’s technology, a borrower can pull this off on a Sunday and spend the $$ Sunday afternoon!)
Alternative finance services (AFS) products including installment loans, line-of-credit loans, payday loans, car title loans, a loan on your Rolex… are all accessable from a Lender in another state, another country, an indian tribe in the U.S./Canada, or a store you can walk into.
I could go on but read the bill for yourself over at CreditAccessBusiness.com ! (A great Texas resource I might add :o)
Simply said, draconian legislation is not the answer to solving the financial challenges 20 million consumers faced last year when they chose – “voted” – for access to payday loan styled products. AFS Lenders WANT THEIR MONEY BACK. They will not loan their hard-earned capital to borrowers unable or unwilling to pay it back or in states that make it too tough to collect their money. (Funny thing: One experiment “suggested payday loan borrowers who received an interest-free loan were as likely to take out successive loans as those who paid the normal interest and fees.” –Fusaro and Cirill 2011)
Witness the recent introduction of safe-harbor payday loan legislation in North Carolina, PA… Why? Because the legislators of these states, and others, recognize their constituents insist on using AFS products to solve their financial challenges. Consumers need AFS products and demand access to them. A Bertrand and Morse Study (2011) conceded that “loans maybe fairly priced and that many borrowers are fully informed, capable and simply face a pressing need for cash at a moment when they lack other, cheaper forms of financial aid.”
You want AFS fees paid by consumers to decrease? Make legislative compliance easier to comprehend and allow competition in the marketplace. (I’ve got a New York Federal Reserve paper to prove this theory as well – Donald Morgan: Defining & Detecting Predatory Lending)
ENOUGH for now :o) Jer Trihouse Consulting 702-208-6736