AUSTIN -- Ramping up her campaign for governor, state Sen. Wendy Davis (D-Fort Worth) kicked off the new year on the attack.
Davis has recently turned her attention to the issue of payday lending, the business of providing small, short-term loans that can reach interest rates of more than 500 percent. Pitched as a convenient way of providing ready cash, payday lending has long been faulted by opponents with trapping largely low-income customers into a permanent cycle of repayment.
"It's not at all uncommon in Texas for a $300 payday loan to become a $1,000 repayment obligation in only a three month period of time, and it happens a lot," Davis told KVUE's sister station WFAA in an interview for Inside Texas Politics.
In the interview, Davis blamed the industry's proliferation on a 2006 letter to Texas Office of Consumer Credit Commissioner Leslie Pettijohn from Davis' Republican opponent, Texas Attorney General Greg Abbott.
In the letter, Abbott described receiving a request from then-state Sen. Eliot Shapleigh (D-El Paso) to review whether payday lenders were in violation of state consumer laws limiting interest rates by operating under the model of "credit services organizations (CSO)." Such organizations act as middle-men by securing a loan for a customer through an independent, third party lender and charging fees.
Emphasizing his analysis did not constitute a formal opinion, Abbott replied that nothing in the law prevented payday lending businesses from operating as CSOs, so long as they are independent from the organization providing the actual loan. Abbott further noted that CSOs are allowed to charge unlimited fees for their services. He closed the letter by stating, "Any discussion of whether the use of this model is the best public policy for the State of Texas is one that must be addressed by the legislature and has not been explored by this office."
The document was found by the Lone Star Project, an organization which supports Davis for governor. Spokesperson Hector Nieto says Abbott's analysis was proved a boon to payday lenders waiting for the green light to find a way to skirt laws limiting interest rates.
"Prior to 2006, there were only about 300 payday lenders in Texas," said Nieto. "Now, as a result of this letter, there are over 3,000 payday lenders in Texas. That's more than Whataburgers and McDonald's combined."
Overseeing those lenders is Texas Finance Commission Chairman William White. Cash America, of which White is vice president, was hit with federal sanctions in December for allegedly charging soldiers illegal interest rates. In a subsequent interview with the El Paso Times, White suggested those trapped by payday loans were responsible for their own decisions. Davis quickly called for his resignation.
"I think the words I used were, 'The fox guarding the henhouse,'" Davis told WFAA.
Describing herself as an opponent of payday lenders since her election to the Texas Senate, Davis said payday lenders control one of the state's most powerful lobbies. According to a December 2012 article by the Houston Chronicle, payday lenders had contributed $81,000 to Davis' Republican opponent.
Davis' campaign also accused Abbott Friday of taking nearly $400,000 in donations from payday lenders, but revised the numbers downward after several media organizations determined Abbott's campaign had actually received closer to $200,000 from the industry. While still significantly more than the roughly $10,000 Davis herself received from payday lenders, Abbott's campaign called the snafu over numbers "theatrics." White was also one of 40 nominees confirmed together in 2011 through a single group vote Davis supported, a fact Abbott's campaign quickly seized upon.
"Sen. Wendy Davis’ statement is blatant election-year hypocrisy," Abbott campaign press secretary Avdiel Huerta said in a Jan. 2 statement. "Perhaps unknown to Sen. Davis, state law mandates that industry executives serve on the Finance Commission, and Sen. Davis voted to confirm William White to his position. Sen. Davis also had two opportunities to amend bills pertaining to the requirements to serve on the commission, and both times Sen. Davis chose not to do so. Before calling for the resignations of those she voted to confirm, Sen. Davis might take a hard look at a her own record."
Bo Delp, Davis' campaign communications director, responded in a Jan. 4 statement.
“Thousands and thousands of dollars from the payday lending industry to Greg Abbott tells you all you need to know about why he is refusing to give straight answers on his ties to the payday lending industry, or whether William White, VP of Cash America and Chairman of the Texas Finance Commission, should resign," the statement said.
The campaign also noted Tuesday that Davis' vote to confirm White was made under the assumption he would not ultimately use his post to benefit his own company.
Payday lenders have come under fire many times before, and one of the industry's most powerful opponents has been the Catholic Church. In an interview with KVUE during the 83rd Texas Legislature, Austin Bishop Joe Vasquez called payday lending one of his chief concerns. Bishop Vasquez testified in April before a House committee that passing legislation restricting the practice was a moral imperative.
Meanwhile, Davis' campaign has challenged Abbott to take a position on both White and closing the CSO loophole. Thus far, Abbott's campaign has declined to state whether the industry needs reform, or whether changes should be made to the law requiring those appointed to oversee payday lending regulation come from within the industry.
"As Governor, Greg Abbott will ensure his appointees are above reproach. He will go about the process of making good decisions to make Texas a better place," a spokesperson said in an earlier statement. Yet on Tuesday, the campaign indicated neither of the issues in question are off the table either.
"He's open to any and all reforms that will make Texas better," campaign spokesperson Matt Hirsch told KVUE.