If you’ve watched daytime basic cable, you’ve probably seen their commercials. With bright colors and gimmicky sound effects, they’re hard to miss, offering you “$2,000, $3,000, even $5,000 for your auto title!” The flashy marketing behind auto title and payday loans hints at their true target demographic — low-income consumers desperate for money to finish out the month. While some cities in Texas have set limits on the terms of these loans, there is no statewide legislation addressing them, leaving a broad gap for consumers to fall into. It’s time the Texas Legislature addressed the payday and auto title loan industries so consumers won’t have to resort to financial products that are designed to draw them into debt.

Maybe car title and payday loans aren’t a concept you’re familiar with, which is probably for the best. They’re short-term loans from a lender that specializes in these kind of small loans. The interest rates on these loans can be exorbitantly high, forcing consumers to roll over loans from one month to pay off the last, creating a cycle of debt. If consumers can’t pay off a title loan, the lender will collect the car as collateral. For payday lenders some other asset, like a bank account, usually stands behind the loan. These features are in some ways necessary for the industry to continue to operate — high default rates and small loan amounts mean that the lender might need interest rate spreads to ensure a continuous cashflow.

These features of the loan are problematic because the consumers who take them out can often least afford it. According to a 2013 paper by the Consumer Financial Protection Bureau, the median annual income of a payday loan borrower is $22,476, and the median loan size was only $350. The paper noted that consumers were more frequently unemployed or on public assistance than the average population, which is to say these loans are typically for small amounts and taken out by people trying to make ends meet during that tough stretch before the next payday. 

This is all completely understandable and entirely fair — after all, a free-functioning credit market is one of capitalism’s primary underpinnings. The trouble is with these loans’ egregiously high interest rates, which average 339 percent annually on a 14-day loan, according to that CFPB paper. Ideally the loan would be paid back before the interest really started to accrue, but because of the population to which these products are marketed, the lenders are perfectly aware that won’t always be the case. The lenders play an important role in supplying high-risk individuals with short-term capital, but people driven to a 400 percent annual percentage rate loan by desperation will necessarily lose out in this business model.

These lenders have faced a flurry of criticism by consumer advocates for years now, but they have enough powerful friends that they are still relatively unencumbered by state legislation. Auto title and payday lenders wield significant political clout, with major auto title lender Rod Aycox, his family members and his business giving around $1 million to Texas legislators since 2004, according to a recent post by the San Antonio Current. The list of recepients of campaign funds from auto title and payday lenders is long, including powerful players on both sides of the statehouse. These lenders and allied policy groups defend their loan practices, saying that they’re only responding to a demand for credit from risky individuals in a realistic way.  Rob Norcross, a spokesman for the Consumer Service Alliance of Texas, an industry group, told the New York Times last year that “a lot of the criticism of the industry is because of the numbers. Folks really don’t understand how you arrive at the numbers.” Additionally advocacy groups like the Texas Public Policy Foundation have come out in the past, defending the practice as responding to consumer demand.

The groups and businesses that advocate for payday and auto title lending have a point. Short-term credit is a tool, like a mortgage or a small business loan, that ideally will serve a constructive purpose for the borrower. Taking short-term loans away from consumers won’t solve their woes, but only force them into worse options like finding another lender somewhere else or bouncing checks. An appropriate legislative response won’t close these kinds of businesses, but put into place common-sense reforms to protect consumers who might otherwise be biting off more than they can chew. When it comes to money, there will always be good times and bad times, and the credit instruments ordinary Americans use to get by shouldn’t ensure that they never see those good times again.

Matula is a finance senior from Austin. Follow Matula on Twitter @chucketlist.