Payday Lending Bill Enhanced in Senate, Maybe Too Much

A bill that would regulate the growing payday and auto title lending industry passed the Senate this week, by a vote of 23 to 7. From a city perspective, the bill is much-improved. The as-filed version of the bill, S.B. 1247 by Senator John Carona, would have imposed some restrictions on lenders, but it would have preempted city regulations over the businesses (other than zoning). When the bill emerged from Senate committee on April 8, it was much worse; the substantive regulations were weaker, and the city preemption clause was stricter. (The committee version would even have preempted municipal health and safety regulations, such as fire and building codes.)

A series of successful Senate floor amendments changed the bill dramatically. One amendment effectively canceled the preemption clause over city ordinances, meaning that cities would be free to impose stricter regulations over the industry than contained in the bill. Another amendment caps interest rates on the loans at 36 percent (some lenders currently charge in excess of 400 percent, thanks to a legal loophole that exempts the industry from usury laws). In all, fourteen amendments were adopted, most of them beneficial.

So cities are in good shape when it comes to this payday lending bill, right? Not so fast. Some of the floor amendments that were planned in advance by the bill’s author appeared to make the bill unacceptable to the payday lending lobbyists, who promptly set about trying to kill their own bill. Though they didn’t succeed in the Senate, it is well known that the House is likely to give any payday regulations far more scrutiny. It’s possible that the beneficial amendments made in the Senate were part of an industry plan to weaken the bill by tacking on so many positives that the bill will be doomed in the House.

What would the death of S.B. 1247 mean for Texas cities? On a positive note, the troublesome preemption clause in the as-filed and committee versions wouldn’t become law. On the negative side, there would be no statewide regulation and the payday industry will likely continue suing cities with payday ordinances challenging that the ordinances are preempted under current law.

On a further note, there are several bills filed this session that would simply preempt city authority over payday lending without a corresponding increase in state regulation. None of those bills have moved. Hopefully, such an approach is too cynical to even get a hearing. But anything can happen in the final month of a legislative session.

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