Recognizing the growing popularity of cash advance loans, the state of Texas was one of the first to begin to legalize this business, a move that helped the industry grow, as well as helped protect consumers who utilized these types of loans regularly. Currently, there are no specific Texas payday loan industry laws, although there are regulations that have established caps on interest rates.
Texas and nearly 40 other states have enacted safe harbor legislation for payday lenders and allow loans solely based on checks written from the consumer’s bank account at interest rates up to triple digits.
The regulations that have been imposed on payday loans in Texas are more lenient than other states. Loans have no minimum or maximum, however consumers are protected from winding up more in debt by rolling their loan over. Texas, and many other states do not allow loan rollover, which means the loan must be repaid by the borrower’s next payday.
The APR based on a 14-day $100 loan tops out at more than 300 percent, which seems high. It is important to note that cash advance loans are for a much shorter term than other loans, which spread out their payment over many years, and is much lower than other states that allow payday loans. Some states allow an APR that tops more than 500 percent. There is also a minimal finance charge based on a 14-day $100 loan, which is $12, plus a maximum finance charge rate and fees of $10 per loan and 48 percent annual interest. Texas does not have a policy on how many loans a consumer can take out at one time.
These regulations clearly allow check-secured payday loans. Although the interest rates may seem high, there are built-in protections that require the repayments to go towards the principal.
Texas cash advance lenders are required to post a notice describing their fee schedule, as well as a written agreement, which must contain the lender’s name, transaction date, check amount, fee itemization, earliest date the check must be deposited and the total amount that must be paid with the APR. The agreement form must also include the name, address, and phone number of the Consumer Credit Commissioner and include a notice describing payday loans as intended for short-term cash needs.
Texas payday loan regulations also prohibit lenders from dividing the cash advance into two loans in order to collect higher interest fees and lenders are not allowed to pursue criminal charges criminal charges in order to collect on the debt.
While there are many positive features and benefits to payday advances in Texas, many people still consider these loans a very expensive way to borrow money. It is important when looking to obtain a payday loan in Texas that you make sure the cash advance company is based in Texas and not another state, which may be completely unregulated. Also, be sure you note the exact amount of interest and fees and they are completely disclosed.
It is also important to note that many Texas payday advance lenders are considered Credit Service Organizations (CSO) and are therefore classified not as a lender, but as an entity that extends credit to Texas consumers. Many Texas payday lenders began operating as CSOs nearly two years ago and based their business practice on the bank-charter model, partnering with banks and acting as brokers.
Payday loans are a thriving business in Texas and the industry is one of the oldest in the nation. The state of Texas provides regulations in order to protect consumers from predatory lending. Payday cash advances are a viable option for many Americans and should always be considered thoroughly before taking out the loan.