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Bishop Vásquez will be providing the following testimony before the Senate Business and Commerce Committee today.
My name is Bishop Joe Vásquez. I am the Bishop of the Diocese of Austin and I am testifying today on behalf of the Texas Catholic Conference, the Roman Catholic Bishops of Texas, in support of SB 253.
In the teachings of our faith, we have many warnings about usury and the exploitation of people. Catholic Social Teaching demands respect for the dignity of persons, preferential concern for the poor and vulnerable, and the pursuit of the common good. These principles, coupled with our teaching on economic justice, lead us to question current payday and auto title lending practices.
A CSO, or Credit Services Organization, should help people clean up bad credit. Instead, the Texas law governing CSOs is being exploited as a loophole. Payday and auto title loan operators use it to charge high fees for loans that trap people in debt. By claiming that they are not lenders, they use this loophole to circumvent Texas laws that cap rates and fees for consumer loans.
Lending models should provide fair and helpful loans for families in need. The growing number of payday and auto title lenders in Texas may be doing more harm than good for persons in need of short-term cash loans. The stated purpose of payday loans is to offer a solution to families who face a short-term crisis. Instead of promoting the financial stability of consumers, however, payday lenders operating in the current system actually benefit more from their consumers' financial failure than their success. These practices are unjust and risk collapsing the stability of the family.
Other consumer advocates will testify today about the mechanics of the finance code and alternatives that are currently available to Texas families, but I am here as a pastor to share both the moral concerns related to usury, and the everyday experience of those we serve in our charitable ministries, such as Catholic Charities and the St. Vincent de Paul Society. In recent years, those served by these ministries have found themselves owing far more. We noticed that while we are providing $300 cash assistance to a family for food and utilities, that same family has outstanding payday loan debt of $300-500. When we ask them about their financial stress, none of these families tell us they went to a credit service organization to repair their credit. They are generally embarrassed to admit that they sought a loan to pay for an emergency without understanding the fees involved. We are concerned that our charitable dollars are in fact funding the profits of pay day lenders rather than helping the poor achieve self-sufficiency.
In the last quarter of 2010, our Catholic Charities agencies throughout the state conducted a survey of our financial assistance clients to better understand the impact of payday and auto title loans. We found that 18.6 % of those we served in financial assistance programs had used payday and auto title loans and 48.6 % stated that the financial stress caused by these loans led to their seeking assistance from us. Of these clients, 73.3 % are also receiving public benefits such as CHIP, Medicaid, or TANF. If payday lenders were not taking money from these families to line their own pockets, perhaps these families would not need the charitable and public assistance they receive. The full results of the survey are available with my written testimony.
Although the quest for equitable profit is acceptable in economic and financial activity, recourse to usury is to be morally condemned. Forcing poor families to pay 500% interest on short-term loans is wrong. The extreme interest rates charged by payday lenders create a painful cycle of dependence that traps financially vulnerable families throughout our state. It is time to end that cycle and offer families protection from this abuse.
My brother bishops in other parts of the country have called for much more aggressive reforms, taking strong and successful stands such as demanding a 36% interest rate cap. We have not pursued this aggressive approach. Rather, we are merely asking that Texas lending law be consistent. The legislature has already vetted lending regulations and passed Chapter 342, which still allows interest rates of 135% in many cases. We now need to level the playing field to assure that the market operates fairly with rules that apply across the board to all lenders.
The Catholic Bishops of Texas call on Legislators to:
- Close the loophole in state law that allows payday, auto title, and other consumer loans to carry annual percentage rates upwards of 500%; and to
- Provide a level playing field by requiring that all lenders and brokers of payday, auto title, or other consumer loans be licensed and comply with the same standards and consumer protection laws of licensed lenders under Chapter 342 of the Texas Finance Code.
Mr. Chairman and members, thank you for the opportunity to share our support of this bill to close the CSO loophole for the protection of Texas families.
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