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Why Retail Bad Debt Statutes are Vital for Businesses and Consumers Alike

HB 3389 in Texas is critical for protecting consumers and businesses.

The Southwest Public Policy Institute strongly supports Texas HB 3389, which would maintain and reinforce bad debt statutes in relation to retail installment loan contracts. These statutes are critical in preventing an additional, unfair, and unwarranted tax burden on businesses and ultimately hurting consumers.

Without bad debt statutes, businesses are forced to pay more sales tax on prices that were never fully paid. Additionally, lenders are unable to operate in a safe and sound manner and employ risk-mitigating methods in the management of their loan portfolio and underwriting process, as it is not possible without bad debt statutes.

This is particularly harmful to small retailers facing financial difficulty, as existing bad debt deductions allow them to sell their accounts in order to replenish their inventory. Without them, retailers will receive considerably less for their accounts and will be required to hold on to risky loans that might otherwise be sold to well-capitalized lenders.

Consumers are also affected by the absence of bad debt statutes. The risk borne by the lender is increased, which forces lenders to price in the additional risk in the form of higher interest rates for certain loans. This limits credit availability, which negatively affects financial inclusion and hinders the ability of individuals and families to manage their finances effectively and their prospects for financial mobility.

It is essential that we maintain and reinforce bad debt statutes in relation to retail installment loan contracts to ensure fairness for both businesses and consumers. These statutes recognize modern financial relationships and acknowledge that when the purchaser of goods on credit fails to pay in full for a product, the transaction is economically incomplete and the retailer or lender is entitled to a sales tax refund. Lawmakers should support the current bill and protect the interests of businesses and consumers alike.

House Bill 3389 is scheduled for a public hearing on May 1 in the Texas House Ways & Means Committee.

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