By Dave Lieber

Fifteen states don’t allow payday lenders to operate within their borders, often because of outrageous interest rates charges to customers.

Other states allow them to do business, but many have some kind of state regulatory agency that oversees the business.

Then there’s Texas.

The payday loan business in Texas is unregulated.

Payday loans are usually small loans with high interest rates taken out by consumers until their next paycheck. Customers are often poor, lack credit cards and are unable to secure low-interest loans at banks or other lending institutions.

Fort Worth, Texas-based Cash America, for example, charges a $20 fee on each $100 borrowed. Customers are allowed to extend the loan up to four times if needed, a process that tacks on more fees. Interest rates, if calculated for an entire year, can reach more than 1,000 percent. But payday lenders say that calculation is unfair because the loans often last for several weeks or less.

Texas state Sen. Wendy Davis, D-Fort Worth, co-sponsored several bills in the Legislature last year that would have imposed regulations on the payday loan industry, but none got out of the Business and Commerce Committee.

During a hearing on Davis’ bills last year, Leslie Pettijohn, the state’s consumer credit commissioner, testified that no state agency has regulatory oversight of payday lending. According to a summary of the hearing distributed by Davis’ office, Pettijohn said: “We don’t have any jurisdiction [over complaints]. We often try to pass them to the Attorney General’s office. They often try to send them back to us.”

At that hearing, Davis recalls, the room was packed with industry lobbyists. Few consumers attended.

“It’s the mighty against the weak, and as you can imagine, the mighty are winning out,” Davis says.

State law was changed several years ago to allow payday lenders to operate as credit service organizations, which allows them to avoid state lending and usury laws. Because of this, critics say, Texas payday loans are among the most expensive in the nation.

Cash America spends about $30,000 a year on political donations to Texas candidates, estimates Alex Vaughn, the company’s vice president of governmental affairs. Cash America’s vice president of government relations, William J. White, was appointed by Gov. Rick Perry to chair the Texas Finance Commission, which ensures that banks, savings institutions and consumer credit grantors operate as sound and responsible businesses. White’s term expires this month.

Referring to that appointment last year, state Sen. Eliot Shapleigh, D-El Paso, said: “The fox is not in the henhouse. The fox owns the henhouse.” Shapleigh introduced several bills with Davis trying to regulate the industry.

Cash America’s Vaughn says that because White was appointed as the designated industry representative, it’s unfair to paint his position as anything negative.

Predatory lending is an unfair term, Vaughn says, because customers are not forced to do business with payday lenders.

“Our customers are intelligent,” he says. “They may not be the best in financial management, but they know the costs and the alternatives.”

Last year, legislators estimated that Texas payday lenders annually lend about $2 billion and collect $400 million in fees. But those numbers are difficult to pin down since payday lenders are not required to report their numbers to the state, something one of Davis’ bills would have changed.

The Austin-based Center for Public Policy Priorities has estimated that a $500 loan can end up costing a borrower $4,000 if it is not paid back immediately.

I asked Davis whether she plans to reintroduce her bills next year.

“Absolutely,” she replied.

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Dave Lieber, The Watchdog columnist for The Fort Worth Star-Telegram, is the founder of Watchdog Nation. The new 2010 edition of his book, Dave Lieber’s Watchdog Nation: Bite Back When Businesses and Scammers Do You Wrong, is out. Revised and expanded, the book won two national book awards in 2009 for social change. Twitter @DaveLieber