How Many Payday Loans Can You Have in Texas?

Payday loans often serve as a short-term financial solution for immediate cash needs, and understanding the specific regulations governing them is important. In Texas, the regulatory framework for these loans is distinct and complex, differing from many other states. This article explores Texas payday loan laws, including how they are defined, their associated costs, and the protections available to borrowers.

Understanding Payday Loans in Texas

In Texas, what is commonly referred to as a “payday loan” operates under a specific regulatory structure. The state does not directly license “payday lenders” in the traditional sense. Instead, these businesses are regulated primarily as Credit Access Businesses (CABs) under the Credit Services Organization (CSO) Act, found in Texas Finance Code Chapter 393. This framework allows CABs to act as intermediaries, assisting consumers in obtaining short-term, high-cost loans from unaffiliated third-party lenders.

Credit Access Businesses charge separate fees for their services, which are distinct from the interest charged by the third-party lender. The loans facilitated through this model are typically small in principal amount and designed to be repaid quickly, often coinciding with a borrower’s next paycheck. While the CAB arranges the loan, the actual funds come from a separate lender, with the CAB earning its revenue through fees for its credit access services.

Texas Loan Amount and Term Limits

Texas law does not impose a direct limit on the specific number of payday loans an individual can have simultaneously. This absence of a numerical cap at the state level means that, theoretically, a borrower could obtain multiple loans, although practical limitations often arise from lenders’ internal policies or the borrower’s ability to manage multiple repayments. Instead of limiting the number of loans, state and local regulations focus on the terms and amounts of these loans.

While there is no statewide maximum loan amount specified, many local city ordinances have implemented stricter rules. These municipal regulations often cap the loan amount, including fees, at 20% of the borrower’s gross monthly income. For instance, if an individual earns $3,000 gross per month, a payday loan in a city with such an ordinance generally cannot exceed $600. Loan terms in Texas can range from a minimum of 7 days to a maximum of 180 days, providing some flexibility in repayment schedules.

Costs and Repayment Rules

Payday loans in Texas are associated with substantial costs that can quickly accumulate. Lenders and Credit Access Businesses charge various fees, including credit access business fees and interest from the third-party lender. These charges contribute to extremely high Annual Percentage Rates (APRs), which frequently exceed 400% and can sometimes reach as high as 600% to 800%. For example, a $500 loan for 14 days might incur $75 in fees, resulting in an APR of 391%.

Regarding rollovers and renewals, state law does not explicitly restrict the number of times a loan can be rolled over. However, many cities with local ordinances limit rollovers to three, requiring a 25% principal reduction before a loan can be renewed after the third rollover. Repayment structures typically involve a single lump sum due on the borrower’s next payday, though installment payment options for up to six months are also possible. If a borrower cannot repay on time, they may be offered an extended payment plan, which can help manage the debt over a longer period.

Texas Regulatory Environment and Borrower Rights

The Office of Consumer Credit Commissioner (OCCC) is the primary state agency responsible for overseeing Credit Access Businesses (CABs) and enforcing the Credit Services Organization (CSO) Act in Texas. This regulatory body ensures compliance with state laws designed to protect consumers. While state law provides a baseline, local city ordinances play a significant role in further regulating payday loan operations.

Over 45 Texas cities have adopted unified ordinances that impose stricter limitations than state law, such as capping loan amounts, limiting rollovers, and requiring principal reduction. Borrowers in Texas possess specific rights, including the right to rescind a loan by the next business day without penalty. They also have the right to request an affordable installment repayment plan, and state law prohibits criminal penalties for non-payment of payday loan debt. If borrowers believe their rights have been violated or encounter unfair practices, they can file complaints with the OCCC.