Two measures regulating payday and auto title loans which were passed by the Texas Legislature await Gov. Rick Perry’s signature. If passed, the two bills will establish a licensing and regulatory framework for all short-term consumer loans such as payday loans and auto title loans. However, they will not cap fees or the amount that can be loaned to a debtor. Currently, payday loan lenders and auto-loan lenders operate largely unregulated in what some describe as a “Wild West” environment where debtors are vulnerable to predatory lending practices. But will the new laws make a true impact on how debtors are affected by these short-term loans?
While payday loans and other short-term loans should be regulated, it’s not guaranteed that such regulation will protect consumers in the ways they need. For example, the biggest complaint about payday loans is that they are high interest and designed to keep the debtor indebted. If this is not addressed then we can’t seriously claim that we are protecting consumers from these types of loans. Yes, providing disclosures that force the payday loan lender to compare their services to other similar types of services provides some reference point to the debtor; but how many will read it? How many debtors who choose to read the disclosures will actually understand that the payday loan they are taking could have a serious impact on their financial health? If the past is any indicator of what we can expect for the future, the answer is that not many will read or understand the disclosures provided by payday loan lenders. And that is something which we should consider.