Home How Can Payday Loans Be Legal?

How Can Payday Loans Be Legal?

How Can Payday Loans Be Legal?

In the past, such lending practices were illegal and would have been the domain of neighborhood loan sharks. Today, large corporations making billions of dollars off these loans have found ways to weaken or evade state usury laws. In Texas, the state constitution declares that any loan not regulated by another statute with an APR of over 10%, shall be deemed usurious. The Texas Finance Code contains regulations governing these products which set generous limits on rates and fees. However, lenders desiring no limits whatsoever have found successive loopholes to evade these basic safeguards. Lenders are able to avoid Texas’ usury law by registering as Credit Access Businesses (CAB) under the Credit Services Organizations code. The CAB’s setup a store-front that collects only fees while a third party lender receives interest at or below 10% APR. This lucrative, fabricated arrangement has led to an explosion of predatory lending in Texas. There are now over 3,500 storefront lenders, more locations than McDonalds and Whataburger combined.

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