Payday loans are short-term, high-interest, deferred presentation loans. Generally, payday lenders require borrowers to post-date personal checks that are redeemable on the borrowers' next payday. Payday loans are regulated by state laws. In Texas, consumer protection laws require licensing to operate as lenders, limit the amount of interest that payday lenders can charge borrowers and limit their collection efforts against borrowers who fail to repay their payday loans.
Regulatory Agency
The Office of Consumer Credit Commissioner regulates the consumer credit loan industry. The office regulates over a half dozen types of consumer loans, including home equity and improvement loans, pawnshop transactions, consumer installment loans and payday loans. The Office of Credit Consumer Credit Commissioner issues a "Deferred Presentation Transaction Rate Chart" limiting the interest rates and annual percentage rates that payday loan lenders can charge, as required under the Texas Administrative Code and the Texas Finance Code, Chapter 342, Subchapter F. According to the Texas Administrative Code, payday loan lenders must first obtain proper licensing to transact business as payday loan lenders in Texas and cannot enter into payday loans for terms of less than seven days.
Texas Loan Laws
The Texas Finance code establishes the usury laws all payday loan lenders must follow. Payday loan lenders are subject to usury interest limits on their payday loans. If they violate the statutory provisions of the Texas Finance Code, they are subject to double or treble damages. Moreover, the state will cancel the terms of their payday loans, making collection impossible in Texas courts. According to Section 305 of the Texas Finance Code, payday loan lenders are also subject to the state's homestead protection statutes as personal loan lenders, as opposed to commercial loan lenders. Personal loan lenders extend loans for household, personal or family purposes. These types of transactions are governed by the state's homestead protection rules limiting collection of property under collection judgment efforts to non-homestead property.
Contract Laws and Disclosures
Payday loan lenders cannot enter into oral agreements, but must use written loan documents. Their loan agreements must be signed by both borrower and lender and contain the amount of the loan, the date of the loan, the deferred check amount, a statement of total charges and the earliest date the lender can deposit the borrower's check. Payday loan lenders must issue written disclosures to borrowers notifying them of their total finance charges expressed as an annual percentage rate and as a dollar amount. Payday lenders must also provide fee schedule disclosures and provide the address and other consumer help information for the Office of Consumer Credit Commissioner. Lenders must give each borrower a written disclosure of the pitfalls of obtaining a short-term, high-interest loan and the consequences of being unable to pay the entire debt and renewing a payday loan.
Limited Collection Remedies
The Texas Legislature passed homestead laws limiting the collection rights payday loan lenders and other creditors have when borrowers default on their loans. The Texas homestead protection laws limit real and personal property from judgment collection efforts. Texas law protects homestead real property that consists of up to 200 acres of land and a home in rural areas and up to one acre and a home in urban areas. The homestead laws allow borrowers to exempt up to $60,000 of marital personal property from creditors and up to $30,000 of a single resident's personal property. In addition to the limitations on personal property, Texas law prohibits creditors from taking specific personal property, including boats and cars, business equipment, children's personal items, food, personal furnishings and heirlooms.
Considerations
Because state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.
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