Letter to the Editor re: "Perils of Payday"
The Texas Observer
May 3, 2009
by: J. Scott Sheehan
Editor,
Melissa Del Bosque is talented reporter for the Texas Observer, but her report on Credit Service Organizations (CSOs) and small, short-term (payday) loans missed the mark. The main focus of her report was "loopholes" that prevent industry regulation. To help protect Texas consumers, CSO companies and lenders are required to comply with Texas Credit Services Organizations Act; Texas Deceptive Trade Practices Act; Texas Business and Commerce Code; Federal Truth in Lending Act; Texas Debt Collections Practices Act; Federal Equal Credit Opportunity Act and Regulation B; Federal Fair Credit Reporting Act and Regulation V; Federal Trade Commission Act; Gramm-Leach-Bliley Act; and various Federal Trade Commission regulations. CSOs that want to become members of the Consumer Service Alliance of Texas are also required to comply with our industry leading CSAT Best Practices on disclosure and consumer education.
CSAT members provide retail financial products and services to Texas consumers including access to regulated small, short-term loans; money orders; pre-paid debit cards and other services desired to help them manage their finances. The small loans (often referred to as "payday loans") are priced lower than other available choices such as NSF fees, vendor late charges and utility reconnect fees. The FDIC recently reported the average two-week bank overdraft is over twice the cost of a small loan.
Small, short-term lenders in Texas are not opposed to additional, meaningful oversight. But passing laws that simply cap annual percentage rates (APRs) at 36% -- driving short-term lending organizations out of the market -- would make consumers worse off.
And finally, implying the Texas Attorney General is lazy or has been influenced by campaign contributions is unfair to General Abbott. In 2005, the Consumer Credit Commissioner and Senator Shapleigh asked the Attorney General to interpret Texas law, not to investigate a company or a group of companies. The Attorney General concluded there was nothing in the plain language of the Credit Service Organization Act that limits its use to a particular type of financial transaction. The AG also noted the U.S. Fifth Circuit Court of Appeals had examined and upheld an alternative use of the CSO model in a case in 2004. The Attorney General concluded, "Based on these facts, on its face the CSO model does not appear to be prohibited under Texas law".
J. Scott Sheehan
Legal Counsel
Consumer Service Alliance of Texas
