Here’s What New Federal Rules Mean For Payday Lending in Texas

It could alter the way the state’s $5.8 billion industry operates.

By Alexandra HartOctober 13, 2017 4:00 pm| ,

They dot strip malls throughout the state: storefronts offering up cash quick, no credit check required. Payday lending is big business, estimated to be a $5.8 billion industry just in Texas alone. They offer quick cash infusions for people in a financial bind who might not qualify for more traditional lines of credit. But with high interest rates and big penalties, the loans can quickly turn into a debt spiral for already vulnerable borrowers.

Now, the Consumer Financial Protection Bureau is taking steps to crack down on what it calls “payday debt traps.” Jim Hawkins is a professor at the University of Houston Law Center. He says that the new rules require several changes – but the most significant is a so-called “full payment test.”

“For those short payday loans that are less than two weeks, or the auto-title loans which are a month, it requires the lender verify that the borrower can pay it off completely at the end of the loan period,” Hawkins says.

Thats a big change for lenders. Now, they’ll have to look at borrowers’ income and other financial obligations to be sure that they’ll be able to pay off the loan.

Critics – like payday lenders themselves – say that the new rules will hurt people who rely on these loans. But Hawkins says he believes the industry will adapt to the rules and find new ways to offer loans to people.

“In Texas it used to be extremely common to have these single payment loans,” he says. “That used to be the norm across Texas. But within the past couple of years as the CFPB has indicated its going to industry, now if you look at what type of loans payday and title lenders are making, they’re making longer installment loans. and for a loan thats 12 months long where theres no balloon payment at the end. So my guess is that industry will adapt to make a product that’s not regulated very strongly by these rules. “