New Bill Could Expand Texas Payday Loans and Other High Interest Products

Inside Subprime: April 23, 2019

By Lindsey Frankel

New legislation threatens to rollback protections that designate sale-leaseback industry transactions as loans in Texas, which would open the door to exorbitantly high interest rates that trap consumers in debt.

House Bill 3929, filed by San Antonio Democrat Rep. Roland Gutierrez, would undercut the city of San Antonio’s regulation of predatory lenders, since the same rules that apply to payday loans would not apply to sale-leaseback transactions if they are not considered loans. It would also allow sale/leaseback providers to charge triple-digit interest rates to service members despite the protections of the Military Lending Act.

Sale-leaseback transactions are similar to pawn shop loans. They involve the “sale” of an item by a consumer, who then leases the item back at a high cost. For example, someone in need of financial help may “sell” a television for $200 to get the cash and then lease it back for $60 every two weeks. With any luck, that consumer could buy back the TV for $260 after two weeks. But while these are advertised as short-term transactions, that’s not always how they work out. When borrowers don’t have the funds to buy back their items right away, they become trapped in debt and end up making repeated lease payments.

These predatory transactions first gained the attention of lawmakers in 2000. The annualized interest rates for these transactions would reach the equivalent of 790 percent. At the time, a report from the Senate Committee on Economic Development pointed out that “One industry which has embraced the subterfuge of renaming the loan transaction in order to avoid regulatory oversight by the Office of Consumer Credit Commissioner is the sale/leaseback industry.”

H.B. 3929 would reverse the 2001 decision to designate sale-leaseback transactions as loans and require sale-leaseback lenders to operate under state laws governing short-term loans. Gutierrez claims the bill would expand credit options for consumers while aligning the Texas statute with the Uniform Commercial Code and other states’ laws.

While an attorney representing the payday loan industry supported the bill, consumer advocates and faith groups spoke out against the legislation during a recent hearing.

Gutierrez amended the bill to state that sale-leaseback transactions will be designated as loans under the law, with the exception of transactions that follow the Military Lending Act and Consumer Leasing Act “to the extent applicable.” But Express News reports that “What that language really means is these transactions don’t have to comply with these laws and therefore are not loans. It’s a particularly insidious carveout.”

Learn more about payday loans, scams, and cash advances, and check out our city and state financial guides, including TexasArlington Payday LoansAustin Payday LoansDallas Payday LoansEl PasoFort WorthHoustonIrvingKilleenMcAllenPlanoRound RockSan AntonioTylerWaco and more.