As Payday Lending Spreads Across Texas, Can It be Reformed or Regulated?

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Don Baylor /(512) 320-0222 x 108

December 7, 2006

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Payday lending, sometimes known as a cash advance, is a small, short-term, high interest loan that is intended to bridge the borrower's cash flow gap between pay periods. High-cost payday loans are considered among the most destructive financial products in the marketplace. With increasingly high lending volume in Texas—well over 2 million loans per year— and exorbitant interest rates (often higher than 500% APR), payday lending products drain over $280 million in earnings from Texas workers each year and pitch many borrowers into an endless cycle of debt. Across the country, consumer advocates have partnered with religious groups, military organizations, and mainstream financial institutions in an effort to push state regulators and lawmakers to curb payday lending abuses. Can Texas regulate the industry in a way that protects borrowers from the dangers of payday loans?