Has Texas been bought?
According to a recent study by East Texas Baptist University Associate Professor Elijah M. Brown and student Taylor Cruse, 81% of all members of the Texas House of Representatives have received financial support from the payday loan industry.
In a recent university class project I worked with students to identify the extent of the payday and auto title loan industry in Texas. According to the Christian Life Commission, payday and auto title loans are “high cost, small-dollar loans offered to individuals without a credit check and little consideration of their ability to repay.”
Money Mutual, a somewhat typical payday lender, proclaims, “Get up to $1,000 as soon as tomorrow!” and then in fine print on their homepage note, “the typical representative APR range is somewhere between 261% and 1304% for a 14 day loan.”
In Texas the average payday loan is $475 and effective APR ranges from 250% to 800%. According to a recent report from the Center for Public Policy Priorities, “Texans paid more in payday and auto title loan fees in 2013 compared to 2012 and remained in debt longer, even though they took out fewer total loans during that same time.”
Payday and auto title loans offer “no meaningful protections for borrowers,” imperil financial viability, restrict financial growth, and trap individuals in cycles of debt. One student voiced his worry that his parents who had taken out a payday loan in his name and without his consent might jeopardize his credit and future earning potential.
- There are over 22,000 payday and auto title loan locations in the United States (meaning there are more payday and auto title loan locations in the USA than there are McDonalds);
- Payday and auto title loans generate an estimated $27 billion in loans each year;
- The typical borrower ultimately pays $822.50 in principal and interest for a $350 loan;
- Over 80% of payday borrowers take out more than one loan per year;
- In Texas, a majority of borrowers are in their 20s and 30s, 59% are women many of whom are single mothers, borrowers include all major ethnic groups though there is a disproportionately high percentage of African American borrowers;
- The majority of individuals who utilize these loans do so not for one time emergencies but to pay for recurring basic expenses such as utilities, food and housing.
Payday and auto title loans trap borrowers into cycles of debt by charging usurious and exorbitant APR and often refusing partial payments. The following are actual APR charges self-reported by a variety of payday loan companies on their websites:
- Cash Store, 585.43% for a $200 loan;
- Cash Net USA, 664.30% for a $550 loan;
- Cash Central, 713.90% for a $400 loan;
- Money Mutual, between 261% and 1304% for a 14 day loan;
- Speedy Cash, between 391.07% and 664.29%;
- Flash Pay Day, between 260.71% and 1825%.
How can this be legal?
The Texas Constitution notes that in the absence of other legislation individual borrowers should not be charged more than 10% APR. In 2005 the payday loan industry reorganized themselves into Credit Service Organizations (CSOs) which were designed in 1987 to help individuals with bad credit receive small loans from third party vendors. An individual who visits a payday store in Texas will therefore be offered a loan from a third party vendor at less than 10% actual APR thus satisfying the legal requirement of the state. For procuring this loan the CSO will then leverage a fee and in Texas there are no regulatory caps on these fees. This causes the effective APR to sharply rise into the hundreds of percentage points.
Payday and auto title loans can quickly propel people into a cyclical debt bondage. According to the Pew Charitable Trust, 41% of borrowers need a cash infusion from an outside source in order to pay off a payday loan. In 2012, 35,000 cars or an average of 95 cars per day were repossessed in the state of Texas due to defaults on auto title loans.
Unfortunately, churches and other nonprofits are implicitly at the forefront of subsidizing this industry. At times individual borrowers pay off their payday loans and then request and receive help from churches and other nonprofits to cover expenses such as food, rent and utility bills.
The challenge, in the words of a timely episode of Last Week Tonight by Jon Oliver, is that regulating this industry is “like playing legislative whack-a-mole.”
This is especially the case in Texas. The Office of the Consumer Credit Commissioner is tasked with protecting consumers from predatory lending practices. However, an El Paso Times article observed that the current individual overseeing this state agency is William J. White who is also a Vice President of Cash America, a company hit with sanctions last November for abusive practices.
The situation in Texas is perhaps even far worse than the above indicates. Working closely with East Texas Baptist University student Taylor Cruse, public campaign donations for every member of the Texas House of Representatives was meticulously considered. This new research revealed:
- 81% of all members of the Texas House of Representatives have received financial support from the payday loan industry;
- 70.9% of all Democrats and 87.4% of all Republicans have received monetary contributions from a lobbyist working on behalf of the payday or auto title loan industry;
- 56.4% of Democrats and 81.1% of Republicans have received $1,000 or more from this industry; 18.2% of Democrats and 43.2% of Republicans have received more than $5,000 and 1.8% of Democrats and 16.8% of Republicans have received more than $10,000 in cash donations from this industry;
- The median amount received by Democrats was $1,000 while for Republicans it was $3,250.
This is not a Democratic or Republican issue but a common good and public wellbeing issue begging the question: has the payday and auto title loan industry bought the Texas legislative assembly?
How can churches, nonprofits and other concerned citizens respond to this situation? Perhaps the following are five beginning points:
- Emphasize fair living wages and fair lending practices for all;
- Incorporate awareness and education about the duplicity of the payday and auto title loan industry into financial stewardship initiatives;
- Help individuals pay off payday and auto title loans;
- Contact state and national representatives and, whatever their previous record, ask them from this point forward to refrain from receiving any additional financial contributions from lobbyists working on behalf of the payday and auto title loan industry;
- Support the work of the Christian Life Commission and other organizations working to limit the injustices perpetrated by these industries.