The stories of desperate people falling into the cycle of taking one high-interest payday loan after another to make ends meet have made the industry deeply unpopular in Texas, and Democrats are hoping to lay that anguish at the feet of Republican gubernatorial candidate Greg Abbott.
Abbott's Democratic competitor Wendy Davis, who has authored legislation to limit payday lending fees, seized on comments made by the chair of the Texas Finance Commission to the El Paso Times. William J. White, a Gov. Rick Perry appointee and vice president at payday lender Cash America, told the newspaper that the industry should not face additional regulations because the individuals who take the loans are responsible for their hardships, not the companies who make the loans.
Texas law requires that someone from the consumer lending industry serve on the Texas Finance Commission, which hears consumer complaints, and White fulfills that requirement. But White's comments have focused attention on a seven-year-old fight to rein in the industry, which thanks to a broadly written law, allows loan brokers to charge large fees for arranging loans.
Davis and her Democratic allies in the Texas Senate have called on White to resign his post, arguing that he has revealed his unwillingness to police the industry while hearing cases involving his employer. Davis and progressive groups want Abbott to investigate and remove White, but they also say Abbott is responsible for a 2006 interpretation of the law that cleared the way for payday lenders to charge fees as high as 25 percent of the loan's value.
Since 2006, the number of storefront lenders has boomed to outnumber the number of McDonalds and Starbucks restaurants in the state.
"Abbott's office gave the green light to predatory lenders to expand their operations across our state," Davis said in a statement. "Abbott has proven that he is an advocate for payday lenders that go after hardworking Texans, even members of our armed services, with predatory loan costs often exceeding 500 percent. It's time for a leader who believes you don't have to buy your way into Texas' future."
Yet the 2006 legal interpretation, written by First Assistant Attorney General Barry McBee, said state law and a federal court decision did not allow the attorney general to stop payday lenders from doing business as "credit service organizations," a designation designed to allow non-profits to help people get out of debt.
"Any discussion of whether the use of this (business) model is the best public policy choice for the State of Texas is one that must be addressed by the Legislature," McBee wrote.
Current fees can lead the borrower to pay the equivalent of 500 percent annual interest on their loans. Davis has proposed legislation that would limit the fees that a payday lender may charge, but it hasn't passed. The Texas Baptist Christian Life Commission presented its Horizon Award to Davis for trying to curb predatory lending practices.
Since 2010, payday lenders and their employees have donated $3.7 million to Texas officials, according an analysis of campaign finance reports by Texans for Public Justice released in March. This week, the non-partisan watchdog group said that since 2009, payday lenders have given Abbott $179,000 and given Davis $10,500.
Matt Hirsch, a spokesman for the Abbott campaign, declined to answer any questions about White or to say whether he thinks payday lenders should face tougher regulations. He instead questioned why Davis voted for White's nomination in 2011 to chair the commission if she had a problem with his nomination.
"As Governor, Greg Abbott will ensure his appointees are above reproach," Hirsch said.
Since 2006 Abbott's office has investigated four payday lenders and won judgments or reached settlements in three cases, said Lauren Bean, spokeswoman for the Attorney General's office. Prosecutors shut down Texas Advance Internet for targeting military members in El Paso with predatory lending practices, and they got Check `n Go Texas and EZPAWN to improve identity theft protections.
Meanwhile, federal officials have prosecuted payday lenders. On Nov. 20, the U.S. Consumer Financial Protection Bureau ordered Cash America to refund $14 million and pay a $5 million fine for robotically signing debt collection documents.
Politically, Davis is unlikely to win over any Republican votes for her criticism of payday lending, but it could fire up the Democratic base. For years the NAACP and AARP have lobbied hard for tougher payday lending rules and it's an important issue for their constituencies.