The payday lending loophole – Leah Gonzalez, day 1

Hello! My name is Leah Gonzalez, and I'm pursuing my master's degree in social work at the University of Texas in Austin. I graduated from Howard Payne University with a degree in social work. My family is originally from El Paso, and I grew up in San Antonio. I'll be writing this blog discussing various issues surrounding payday and auto title lending. Payday lending is a complex issue that's targeting the financial welfare of Texas families. I'll be updating this regularly leading up to and throughout Texas' legislative session. Thank you for your interest, and I hope you join me in exploring how payday and auto title lending should be a concern for all Texans.

Texas will begin its 83rd legislative session in early January. I'm new to Austin, and while trying to navigate the city I am exploring issues relevant to the upcoming session.

An issue affecting many across our state is payday and auto title lending. To understand the controversy surrounding the issue, let me briefly explain how payday lending works in Texas.

A person can take out a loan, usually about $500, and is expected to repay the loan amount along with the fees incurred. The potential problem with payday loans comes with those fees. In Texas, payday lenders are able to register as credit access businesses (CABs) under the credit services organization code, thereby bypassing the regulatory standards of how much and how often lenders are able to apply interest rates and fees. Under these conditions, loans can often have annual percentage rates exceeding 700 percent (Senate Committee on Business and Commerce, 2012).

Ideally, these loans are taken out and paid back in full by the following "payday" of the client. However, about 75 percent of people who take out a payday loan will have to refinance, or renew their loan (Texas Faith for Fair Lending, 2012). By registering as a CAB, lenders operate under a loophole that allows an unlimited amount of times a loan can be renewed. Each time a loan is renewed, the total amount that needs to be repaid increases. Also lacking from the standards is the ability of the client to "pay down" the loan; it must be paid in full. The initial $500 loan can increase to nearly $1,000 after five renewals (Bertrand & Morse, 2009).

Organizations such as the Texas Baptist Christian Life Commission, Texas Appleseed, and Texas Impact support legislation to close the loophole on a statewide level.

The societal implications of payday lending are great. It is important to understand the issue and to respond.


Bertrand & Morse, "Information Disclosure, Cognitive Biases and Payday Borrowing", Milton Friedman Institute forResearch in Economics (October 2009).

Texas Faith for Fair Lending & Texas Fair Lending Alliance. (2012). Payday and auto title lending in texas [Brochure]. Austin, TX.

Senate Committee on Business and Commerce. (2012, October 8). Retrieved from

Mcusic, T. (2012). Reports show the scope of payday lending. Star-Telegram. Retrieved from

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