The Debt Trap: Payday Loans On The Rise In Texas


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This credit shop is one of many on South Cooper Street in Arlington.

Khampha Bouaphanh

Star telegram

Editor’s Note: A study shows the average Texan owes about $ 40,000. Nationwide, 2.5 million people counted payday lenders among their creditors in 2013. The Debt Trap is a community project of Star telegram, WFAA and the Austin American statesman The aim is to shed light on the seemingly easy money, loans that either help or destroy the economically disadvantaged, depending on who you ask. This rate examines payday loans. The next installments will cover auto title loans, reverse mortgages, and student loans.

Rev. Wendel “Buck” Cass, a retired Tarrant County employee, is usually on a tight budget. But when his car broke down a few years ago, money was tight, so he took out a $ 500 payday loan from a lender on McCart Avenue, Fort Worth.

Cass, 69, expected to pay an additional $ 50 to $ 125 to secure the loan. But after three months when he could afford to pay it off, he owed more than $ 300 in interest. He ended up paying over $ 810 to borrow $ 500.

“I’ll go broke if I ever do this again,” said Cass, a local pastor at Morning Chapel CME in Fort Worth. “What a rip off.”

Proponents of payday loans, a growing business across the state, say they are a lifeline for people desperate for cash. Critics say lenders exploit the poor and Texas laws do little to protect consumers.

“People in Texas have long had payday loans,” said Rob Norcross, spokesman for the Consumer Service Alliance, the Texas payday trading group of 3,000 lenders. “It’s gotten more popular over the past decade.”

Tarrant County in particular is a hot spot. Clusters of shops line the streets from Fort Worth to South Arlington to Haltom City. There are 11 stores running stores on East Lancaster Avenue. South Arlington had more than 55 locations on a 5-mile stretch between Interstate 20 and Interstate 30, 2012-13 show records. See interactive map

“The payday loan market has grown due to popular demand,” said Fort Worth Mayor Betsy Price. “Businesses tend to be born out of demand.”

Norcross agreed that the marketplace works well.

Along with the number of businesses, the fees Texans pay to secure payday loans similar to Cass’s have increased in recent years. show state records.

Critics, including anti-poverty and church groups like the Wesley Mission Center in Mansfield, say the loans create a debt trap.

“My advice to everyone, if you don’t need it, don’t do it, don’t do it, don’t do it,” said Thomas Richards of Dallas, who borrowed $ 300 from a payday lender and paid back more than $ 600 . “It is a trap.”

Rev. Terry White, pastor of Marsalis Avenue Missionary Baptist Church in Dallas, said dozens in his ward were trapped. Some have to refinance the loans again and again because they cannot pay off in 14 days. The results can be disastrous, White said.

“After four weeks, you might be paying $ 180 in interest on a $ 200 loan,” he said. “I wasn’t aware of the interest rate that was calculated and compounded.”

John Siburt, president and chief operations officer of CitySquare, an anti-poverty group in Dallas, said the business model was exploitative.

“It seems unethical and immoral to make millions of dollars on the backs of poor people,” he said.

High interest rates

Texas borrowers who deposit within 14 days pay an interest rate of approximately 22 percent. So the typical borrower on a single payment payday loan of $ 500 pays an additional $ 110 in interest.

But after 90 days, the borrower is hooked thanks to compound interest for $ 1,270. The rate climbs to 154 percent and interest rates pile up quickly.

Financing costs are complex because lenders offer different types of credit. In addition, the state does not enforce a rate cap. Nor does it tell the payday lenders how much to charge or how to structure the loans. The result: Virtually any interest rate or fee can be charged on an extended loan.

The opposing camps disagree on the percentage of borrowers who fall into the debt trap.

Norcross says only 10 percent of borrowers are involved.

“Ninety percent of people pay back their loans when they are due,” he said.

But payday critics say there are more borrowers like Richardson’s Wanda Riley. Last year she owed $ 1,229 on seven active loans. They started out at $ 121- $ 246, according to an advisor to a charity that helped Riley get out of debt.

“You get a loan, and then you have to get another one because you can’t pay the first one, and then you get another loan to pay it off,” Riley said.

Information from the State Office for Consumer Credit, which admits it sometimes needs to correct errors in the data reported by lenders, speaks for critics.

The data shows that more than half of borrowers refinance more than once. In the Fort Worth-Arlington area, 55.24 percent of consumers have refinanced their lump sum loans, according to data Data for the second quarter for 2014.

A federal report confirms this. A 2014 to learn by the Consumer Financial Protection Bureau found that 4 out of 5 payday loans are extended or renewed within 14 days.

“Abused by this system”

Kathleen Hicks of Fort Worth struggled and lost the political battle of her career for payday loans while serving on the city council.

She embarked on a seven-year crusade to stop the proliferation of payday lenders in her southeastern district, where the poor and working class are battling for access to credit, she says.

“People are being abused by this system,” said Hicks.

Opponents of the council, including councilor Frank Moss, partnered with payday loan lobbyist Tonya Veasey, wife of now United States MP Marc Veasey, D-Fort Worth, to pressure the city into zoning restrictions on payday lenders to loosen up, according to email correspondence between Tonya Veasey and councilors in November 2009.

Councilor Sal Espino, who served when Hicks was waging their war on industry, said he was in favor of drafting an ordinance similar to that in Dallas and other cities to limit payday loan deals at major intersections and in certain neighborhoods. The regulations also limit loan amounts based on borrowers’ incomes and penalize lenders who violate state laws.

“In my opinion, if we passed a regulation now, we would continue to put pressure on lawmakers to do something to protect consumers,” said Espino.

In the Fort Worth-Arlington area, only Saginaw, Watauga, and Flower Mound restrict payday lenders, according to the Texas Municipal League. See the full nationwide list here.

It remains to be seen whether the legislature will address the issue at this session.

Last meeting, a bill by then-Sen. John Carona, R-Dallas, who proposed a nationwide limit on payday loans in the House of Representatives, failed.

At that session, Senator Royce West, D-Dallas, and Rep. Helen Giddings, D-DeSoto said they have not given up on passing a measure to revise payday loans and auto title loans.

Giddings said she supports West’s Senate Bill 121, which is designed to protect Texans from high-interest loans that can skyrocket among borrowers.

“People are stuck,” said Giddings.

The move is intended to set conditions for expanded payment plans, add interest caps, and prohibit debt collection agencies from using threats and coercion.

No changes in sight

Fort Worth is unlikely to revisit the subject.

Price said she wasn’t interested.

“Who should I say you shouldn’t get this loan when you’re desperate?” She said.

The industry has sued cities for putting restrictions in place, but the challenges have largely failed.

Fort Worth Storefronts employees declined to comment. Repeated attempts to reach out to Jay B. Shipowitz, CEO of Ace Cash Express, a payday lender in Irving, have been unsuccessful.

Some lenders, including one of the largest in the country, Cash america, headquartered in Fort Worth, has closed most stores in cities that have passed the ordinances, Norcross said.

A spokeswoman for Fort Worth’s Cash America, a publicly traded company with a volume of $ 1.8 billion, said it had shut down most of its payday loan business in Texas so it could focus on its pawnshop business.

In November 2013, Cash America reached a $ 19 million settlement with the Consumer Financial Protection Bureau after allegations of abusive practices, such as military gazing and “robo-signing,” a practice that sued customers for overdue debt will .

Norcross said Price’s position – that the city should stay out of it and leave it to the state to legislate – could work and that the industry could seek a compromise.

A “middle ground,” he said, would be to give people more time to repay. For example, lenders would allow borrowers to repay $ 400 over six weeks instead of four, he said.

“It would give people a better way to successfully repay their loans,” he said.

“The payday loan is out”

Tonya Veasey took a similar stance in her 2009 email to Council members.

“These companies are the only safe and reliable financial services locations” for underserved communities, it said in her email.

Tonya Veasey and Moss did not answer calls to comment.

Hicks said Fort Worth disappointed residents by refusing to restrict payday lenders.

“I wish people just had more courage,” she said.

Richards, 56 – the Dallas borrower – said he learned a valuable lesson. He borrowed the $ 300 after his social security check was two months late and he couldn’t pay his rent or buy groceries. He said his payout was more than $ 600.

Nowadays, he sets aside $ 25 every month and puts it on a debit card.

“If I need something, I’ll have it there,” said Richards. “The payday loan is out. I don’t dance to this song anymore. “

Tim Eaton, an associate of the Austin American-Statesman, contributed to this report.

This story was originally published February 7, 2015, 6:10 p.m.



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