AUSTIN — Payday lenders in Texas have it pretty good — a special charter lets them charge above-market rates and operate virtually unregulated, but a lobbyist for out-of-state payday lenders hopes the Legislature will make it lucrative for them to do business without this charter.

For the third session in a row, the payday trade group Community Financial Services of America has approached the Legislature about broadening Texas law.

The Texas Legislature, which meets every other year, kicked off its 2007 session Jan. 9. The payday organization is urging lawmakers here to increase the maximum allowable finance charge and hopes that the addition of consumer protections to this year’s proposal will smooth its passage, said Jabo Covert, a vice president at Check Into Cash of Cleveland, Tenn., and a CFSA representative.

National payday lending companies say Texas’ fee and interest rate caps — $12 per $100 for a 15-day loan — are too low to be profitable.

“You can’t even break even at that,” Mr. Covert said. “Most of our members are publicly traded, and the profit is pretty modest compared to other industries.”

Until two or three years ago, payday companies operating in the state were able to get around the cap by partnering with out-of-state banks and importing their rates, but banks have steadily departed the business as regulators imposed new restrictions.

So payday lenders have registered with the Texas secretary of state as credit service organizations, which are largely unregulated. Under Texas law, credit service organizations may charge a fee of up to 20% for arranging short-term loans from a third-party lender.

Payday loans are in high demand in Texas. A study by the Center for Responsible Lending, released Nov. 30, estimated that Texans took out almost $1.8 billion in payday loans in 2005, the third-most in the nation.

But companies such as Check Into Cash prefer to make their own loans and refuse to enter the state until it raises lending caps, Mr. Covert said.

Besides authorizing companies like his to charge 16% per loan, the legislative proposal includes a compilation of best-practice consumer protections from the 38 states where payday lending is legal, Mr. Covert said. These protections include capping loans at 25% of a person’s income, or less than $1,000, whichever is less, and offering payment plans to borrowers who could not meet the typical two-week obligation to repay. Payment plans could stretch out payments for up to two months at no additional cost.

Don Baylor Jr., a senior policy analyst at the Center for Public Policy Priorities, a watchdog group in Austin, said it opposes the idea. The Legislature should instead close the credit service organization loophole, he said.

“It is truly the Wild West right now in Texas,” he said. “There is no effective regulation, and there is no data and no accountability. They are using a statute that is overly broad.”

But a paper titled “Just Until Payday,” published in October by the University of Texas, took a more optimistic view of the legislative proposal. The paper, written by Ronald J. Mann and Jim Hawkins, said that regulating payday lending in the state would encourage national companies to enter and that this would be good for both consumers and the industry. The large companies would be more likely than mom-and-pop shops to draw regulatory attention if they did not comply with the law, and if they are caught violating regulations, their punishments become a deterrent to smaller companies, according to the study.

“If this market is to be tolerated, the market should be populated by large companies motivated by the reputational constraints that attend participation in the public finance markets, not the fly-by-night operators that are so common today,” the study concluded.

A few of the largest Texas payday lending companies with a national presence, such as Ace Cash Express Inc., Cash America International Inc., and First Cash Financial Services Inc., use the credit service organization model in Texas. Ace, the nation’s second-largest payday lender, had a partnership with a Delaware bank but now works with True Financial Services LP, a unit of the consumer lender CompuCredit Corp.

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