Home Texas Payday Lending Reform

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Screen Shot 2015-04-06 at 1.39.00 PMPayday lenders survive by playing a game of cat and mouse.

As individual municipalities crack down, lenders battle in court, use campaign contributions to defeat legislation or simply set up outlets outside of city limits.

That elusive game could soon end. State Rep. James White, R-Woodville, filed a bill last week to expand to the entire state the kind of tough city payday ordinances Dallas passed in 2011. Former House Speaker Tom Craddick, R-Midland, meanwhile, has filed a bill to establish a loan database so regulators can make sure lenders aren’t refinancing loans more times than the law allows.

This is positive momentum. More than 20 Texas cities have rules modeled on the Dallas ordinances; now the need for tougher laws is grabbing the attention of Republican lawmakers. Thanks to a coalition of churches, nonprofits and major Texas cities, legislators have heard countless stories of lending abuses involving their constituents. Austin needs to listen to these voices and take them as a mandate for tougher rules that support those already passed by the cities.

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Texas Payday Loan Fees Often Exceed Original Amount Loaned

The following is a digest of an article originally appearing on the AARP blog. The CLC is posting this summary to help spread information about predatory payday loans in our state.

A study found that 4 out of 5 payday loans are renewed within two weeks after the duration of the loan. 50 percent of the time, borrowers renew up to 10 times. Repeat borrowing may also be more costly than people who get these loans realize. The fees in many renewed loans ended up exceeding the amount that was originally borrowed.

“From this finding, one could readily conclude that the business model for the payday industry depends on people becoming stuck in these loans for the long term, since almost half their business comes from people who are basically paying high-cost rent on the amount of their original loan,” Richard Cordray, director of the CFPB, said in a statement.

A payday loan is a short-term loan, which usually lasts two weeks and is meant to be used for emergencies between paychecks. The fees on these loans have been known to be extremely high. Typically, the average fee is $15 per $100 borrowed, which adds up to an interest rate of about 390 percent. Despite this, an estimate of 12 million Americans still use these loans.

The CFPB studied the one-year activity of borrowers who took out more than 12 million loans from payday lenders in 30 states. It was found that 1 out of 5 borrowers paid on a monthly basis, which is a sign that they receive Social Security or other government benefits. They also remained in debt for the duration of the time they were studied.

Director of consumer and state affairs for the AARP Public Policy Institute, Elizabeth Costle, says payday lenders usually like older borrowers on Social Security because it results in steady income.

“The problem is most people can’t pay them off in two weeks or a month,” Costle says. “They roll them over and they get more fees and more interest, and they get themselves into a debt spiral where they can’t get out.”

The Community Financial Services Association of America says that their surveys suggest that most customers using payday loans are happy.

According to spokeswoman Amy Cantu, her group is working with the CFPB to address reforms.

In November, the CFPB began taking complaints on payday loans. The number has reached several thousand so far. It is unlikely such loans will be eliminated, however.

“Preserving access to small dollar loans does mean, after all, that some such loans should be available,” Cordray said. “Our concern instead is that all too often those loans lead to a perpetuating sequence” of loans. Payday lending has been banned in some states by setting interest rate caps on short-term loans. This has not stopped online payday lenders.

Read original story here.

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Minnesotans wept on Wednesday as senators discussed what to do about the issues with loans. Some people were upset because lawmakers proposed ending short term “pay day loans.” Others cried because the loans have gotten them into serious debt.

The end result was limiting Minnesotans to 8 loans per year.

Renee Bergeron of Duluth, a single mother of four, told committee members that she had found herself in need of money.

“It is just a bait,” she said because of the hole that payday loans had dug her into.

“It just started spiraling,” she said, “When it was all said and done, I was paying at least $600 each paycheck.”

Texas Payday Loan News: Debate Ongoing in Minnesota

The following is a digest of a story originally appearing at TwinCities.com. The Texas CLC is posting this summary as a public service for Texans interested in meaningful payday loan reform in our state.

Teri Frye of Blaine felt differently. She said that since she does not make enough as a Target cashier with a teenager to raise, she turned to pay day loans to get her through.

“I know things are different at the Capitol than the real world where life happens,” Frye said, but in the real world people sometimes need financial help. “I don’t have time to come down here to St. Paul and ask you not to take away my financial rights.”

Restricting loans “hurts thousands of people in my position,” she said. “If Payday America is gone, I have no idea what I will do.”

According to Frye, she borrows $150 at a time and pays Payday America $178 back. She feels that this is a fair interest rate..

Cherrish Holland of the Willmar Lutheran Social Services office feels just the opposite.

She told the story of a woman who blamed payday loans for “sinking her credit score and self-esteem to all-time lows.” The woman apparently  took out a $500 payday loan and had to pay $80 dollars a paycheck for an entire year.

The strong payday loan regulations, suggested by Sen. Jeff Hayden, were rejected. These regulations would have limited Minnesotans to five short-term loans per year. Sen. Paul Gazelka, R-Brainerd, suggesting restricting these loans to 12 per year. It was also suggested that lenders be required to be absolutely sure that the customer has the ability to repay loans.

Gazelka, Reinert, Hayden and others were urged by Senate Commerce Chairman James Metzen to work out a compromise before the Senate vote.

“Both sides make very strong cases,” Gazelka said.

Sherry Rasmusson of Wayzata said on behalf of those who support payday loans: “I just want to thank God for Payday America.”

“Not all loan companies are the same,” she said. “I have been scammed by loan companies,” especially those on the Internet.

Stuart Tapper of Unloan and Unbank, says, “At Unloan, we do not exceed 25 percent of income,” he said of interest rates charged customers. “Our customers know exactly what they are going to be charged.”

Read the original story here.

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Texas Payday Loan Reform News: Payday Lenders Challenging City Ordinance

The following is commentary and a digest of a story originally appearing at the San Antonio Express News. The Christian Life Commission is posting this summary as a public service for Texans interested in meaningful payday lending reform in the Texas 84th legislative session.

Texans interested in meaningful payday lending reforms were disappointed by the 2013 legislative session. Legislation was introduced with some reforms, but that legislation included provisions limiting Texas cities from enacting their own ordinances with stricter regulations. It seems obvious that payday lending lobbyists were behind this legislation. We ended the session with no legislation at all, giving payday lenders in our state another two years to operate with no regulation.

Which is exactly what the industry was hoping for.

Texas, like many other states, is finding it hard to get legislation passed while facing fierce opposition from a the powerful lobbyists behind the industry. In 2013 payday lenders spent over $4 million dollars during the 2013 legislative session in Texas. Without state regulation, cities in our state (San Antonio, Houston, El Paso, Bryan, and others) have introduced their own ordinances.

It was only a matter of time before the industry began to fight this battle at the municipal level.

Last week the San Antonio Express News reported that a number of payday lenders in that city have refused to register, pay their fees, and follow new city guidelines. The new ordinance limits loans to 20% of a borrower’s monthly income. Auto title loans are also limited to a percentage of the borrower’s income.

Now a lawsuit has been filed by Cash Station Ltd., Rapido Dinero, Ltd., and Texas Loan Brokers LLC stating that San Antonio law enforcement has been harassing them, after police showed up at their businesses and demanded fee payment. The nature of the suit is telling and may prove prophetic.

“The three payday lenders suing the city argue the ordinance interferes with the licenses they were granted by the state. The state Office of the Consumer Credit Commission oversees payday lenders in Texas.”

This is not an unexpected move. Cities all over the country are passing their own ordinances to limit what payday lenders can do. As we approach the 2015 session, look for the payday lending lobby to continue attacking the rights of cities to pass local legislation.

Read the original story here.

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Payday Loans in Texas News: Wells Fargo and US Bank Drop Payday Loan Products

The following is a digest of a story originally appearing at the US Finance Post. The Texas CLC is posting this summary as a public service for citizens of Texas who have seen the predatory influence of the payday loan business and are looking for meaningful reforms.

coinstacks300Many of the largest banks in the United States are backing down from the use of short term and high-interest loans. Many organizations refer to these as “debt traps”, and indeed that appears to be what these loans and advances are designed for. Guaranty Bank, U.S. Bank, Wells Fargo, and Fifth Third are all dropping out of the payday loan market. This is an incredible success for citizens and organizations that have opposed these lending services. Banks can expect stricter regulation to come, and limitations on loans for consumers. These are trends that appear to be growing in strength and number.

For quite a while, deposit advances have been offered by most of the larger banks in the United States. These advances were first widely criticized by regulators in 2013. In these deposit advances, borrowers take a small amount of money between paydays and pay it back with an additional fee when their next paycheck arrives. Regulators have placed hard limits on deposit advances as a result of consumers being often trapped in a circle of debt. “The Consumer Finance Bureau said the typical deposit advance lasted 12 days with an APR of over 300%. The bureau also found more than half of borrowers took out advances totaling $3,000 or more. Of these consumers, most paid off one loan and went back into a new loan within 12 days. The average borrower took out 10 deposit advances in a year, paying $458 in fines.”

The FDIC and OCC have issued strong rules on bank deposit advances claiming that these loans “significant safety and soundness and consumer protection risks.” The FDIC and OCC are also requiring that banks take note of whether or not a person can afford to repay their loan(s). They also are requiring that banks implement a “cool down period” that would prevent borrowers from taking out anything more than one loan per month. At one point, Wells Fargo, one of the largest banks with deposit advances, was letting their customers take out deposit advances whenever they wanted. There are huge changes in the payday lending market. Perhaps the days of the banks doing whatever they feel like are coming to a close. This is a good thing for consumers, but perhaps not for cut throat business.

Read original article here.


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Payday Lending News: Lenders Go Online as Regulations Grow

The following is a digest of an article originally appearing at the Austin American Statesman online. The CLC is posting this summary as a public service for citizens interested in meaningful payday lending reforms in Texas.

internet250As public awareness of the predatory nature of payday and auto title loans grows, the payday loan industry is turning to online loans to escape regulation. Now you can secure your quick loan online in a matter of moments. Part of the driving force behind the migration to online payday lending is increased regulation at the state and local levels. Payday loans are illegal in fifteen states and highly regulated in others. As a result, there has been a rise in online payday lending.

However, in an important development, the state of New York has taken legal action against a Native American lending institution that has been delivering payday loans to New Yorkers online. These loans exceed regulations set by the state of New York. The Native American lending institution in question has brought  lawsuit of its own, claiming New York has no jurisdiction over them. Interested parties will be watching the outcome of this legal action. 

Read the original story here.

Payday Lending News: Tribes Challenge New York State Authority in Online Lending

The following is a digest of an article originally published at the New York Times. The Christian Life Commission is posting this summary as a public service for Texans interested in payday lending reform in our state.

Screen shot 2013-09-12 at 4.41.14 PMBenjamin Lawsky, New York’s Superintendent of Financial Services, has brought suit against Native American tribes who offer online payday loans to citizens of his state. These loans violate state regulations that put limits on interest and fees for such loans. His legal action led to Western Sky Financial canceling its online loan product. But now the Native tribe are fighting back.

Two Native American tribes have sued the state of New York, claiming that the state overstepped its bounds and has no jurisdiction over sovereign tribes. The tribes assert that their sovereign status means the state of New York cannot regulate their online services. New York asserts that since the loans are, in fact, made to citizens of New York and violate the laws of New York, they have the right and obligation to take legal action.

This case is being watched across the nation, as many states are cracking down on online payday lenders. One fear is that if the tribes prevail, payday lenders around the nation will enter into agreements with the tribes to handle their online loans.

Read original article here.

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Payday Lending News: Predatory Lenders Find New Ways to Avoid Laws

The following is a digest of an article originally posted at Pro Publica. The CLC is posting this summary as a public service for Texans interested in predatory lending and payday lending reform in our state.

Screen shot 2013-09-05 at 4.01.52 PMTitleMax, a popular auto title loan lender, has found a creative way around local ordinances that would restrict their business operations. In cities with strict lending ordinances, TitleMax offers an auto title loan “for free.” Zero percent interest.

What’s the catch?

The entire loan is due in a very short time. If the borrower is unable to repay the loan, he or she is directed to a Title Max business outside of the area affected by the ordinance. At that location, the loan will be refinanced and set up using one of their more standard loan products. In effect, they use their stores in restricted cities to funnel business to their other locations. In many cases, those alternate locations are merely a few miles down the highway.

This sort of thing is why regulating payday lending has been described as “Whack a Mole,” referring to the popular arcade game. Whenever legislation is enacted, the lending industry carefully crafts a business model to get around it. Since city and state legislative reform does not take place quickly, every move the industry makes buys them a few more years.

Read the original article here.