While Greg Abbott has not blatantly stated his support of the payday lending industry, his work as Attorney General makes his support plain and clear- especially in letters recently revealed by Wendy Davis' campaign, which show Abbott's office gave the go-ahead for payday lenders to navigate loopholes in state law, which would have otherwise deterred their predatory practices.
Payday lenders had previously been nervous about expanding their businesses until a 2006 letter to the Office of Consumer Credit Commissioner from Abbott's office stated they saw no conflict in allowing payday lending businesses to register as credit service organizations, which was originally intended only for mortgage financing. This allowed payday lenders to avoid complying with legal caps and expand their predatory lending businesses. As the Lone Star Project pointed out, the effect of this decision is clear: in 2004, there were approximately 300 payday lenders in Texas. By 2011, there were over 3,000.
Considering these factors, it's no wonder Greg Abbott has been deflecting, especially since he's received more than $190,000 in campaign cash from the payday lending industry. Obviously, they have a lot to thank him for.
Read more about the Greg Abbott effect on the payday lending industry below the jump. Attention on Abbott's involvement with the out-of-control payday lending industry was reignited as he has continued to support Governor Rick Perry's appointed chair to the Texas Finance Commission, despite the chair's conflict of interest by actively profiting from an industry that preys upon the consumers he's supposed to protect.
In the letter from Attorney General Abbott's Office, they recognize that they are allowing payday lenders to apply for a status not originally intended for them: “Although the legislature designed the statutes to provide for CSOs to assist in obtaining mortgage financing for consumers, the plain language of the law does not limit its use to only mortgage finance transactions. Also, there is no limit in the CSO statues on the amount of fees that may be charged by a CSO.” Abbott's office acknowledged that CSOs do not have any limits on the amount of fees they may charge. Which is perfect for an industry to provide loans at exorbitant interest rates, often exceeding 500%, like that of Cash America, the predatory lender Texas Finance Commission Chair William J. White is Vice President of.
Before this letter, ACE Cash Express executives had been hesitant about using the CSO loophole, as American Banker reported:
“The Irving, Tex., company originally saw too much legal risk in the CSO setup, in which payday specialists can collect as much as 20% in fees for arranging a short-term loan from a third-party lender. But this month Texas' attorney general, Greg Abbott, sent a letter to the state's Office of Consumer Credit Commissioner saying that CSOs are permissible. So on an earnings conference call last week Ace said it will begin brokering loans as a credit service organization sometime in the next two quarters.”?
The letter from Abbott's office gave this permission even though it was not a formal Attorney General opinion, which they stated would be “subject to exhaustive review and public comment.” Abbott and his office couldn't bother going through a formal process with public input, even with the understanding that their opinion gave the green light to a major shift in the CSO model that was not originally intended by the Legislature. The majority of State Attorney Generals around the nation have taken the initiative to call on Congress to halt predatory lending practices, while Abbott basically rolled out the welcome mat here in Texas.
Since joining the Texas in 2009, Wendy Davis has stood up to predatory lenders and fought hard for payday lending reform by filing legislation to close the credit service organization loophole, limit the interest rate charged to U.S. military members and their dependents, and cap the interest payday lenders can charge.
Everyday, hardworking Texans are struggling to pay off the tab big businesses have racked up with Greg Abbott's help navigating around state law. As long as he continues to benefit financially from the predatory lending industry, Abbott will not only remain quiet on providing a fair application of the law to Texas businesses, but continue to find shortcuts for those he knows he can benefit from.