Predatory Lending: An Issue of Faith
Sign the Texas Faith for Fair Lending Petition!
Payday and auto title lenders operate a multi-billion dollar lending market in this state.
Unlike most other lenders (such as banks and credit unions), 98% of payday lenders in Texas are not licensed, regulated or subject to any meaningful consumer protections.
In 2001, the Texas Legislature passed a law that effectively capped interest rates and fees for payday loans. To avoid complying with state lending laws, payday and auto title lenders have exploited a loophole. These lenders are operating under the guise of a loan broker, or Credit Services Organization (CSO). They say they are trying to help people manage debt, while actually sinking many further into debt.
These high cost loans are hurting Texas families. They are immoral, unethical and in direct contradiction of the religious values that most Texans hold. Individuals, congregations, and other groups of faithful Texans are joining together as Texas Faith for Fair Lending to urge the State Legislature to close this loophole, demand these lenders operate within the Texas Finance Code, and stop taking advantage of our neighbors.
How It Works
The following scenario is an example of how typical payday loans operate and how they can lead to trouble. Let’s say that a single mother is in need of a $300 loan and goes to a payday lender because she has a poor credit history and no credit card. She writes a check to a payday lender for $361.07 ($300 principle loan, plus $1.07 interest, and a $60.00 service fee).
The payday lender promises to hold the check for 2 weeks until she gets paid again. The next payday, after the due date, she will either pay off her $361.07 debt in cash or if she does not have the full amount she will default and the payday lender to cash the check. The check will bounce incurring penalty fees from both the bank and the lender.
She cannot pay it off in installments; she must pay it in full. If she doesn’t have $361.07 when the loan is due in two weeks, in order to avoid the penalties, she rolls over the original loan and pays an additional $60.00 loan fee. This fee simply gives her two more weeks to pay the entire original amount, it does not reduce the amount she must pay all at once. If the loan was paid off after just one roll over, a $300 loan would cost $421.07. That’s a profit of $121.07 on a $300 loan in one month.
Auto title loans are similar but are much more dangerous because the principal borrowed is much higher.
Who uses these loans?
Payday lenders mostly serve families with moderate and low incomes. In a recent survey, the majority of payday borrowers earn an income of $30,000 or less. One in ten payday borrowers use them monthly. 58% of people who use a payday loan roll over the loan at least once, while one in four payday borrowers roll them over multiple times. Most payday loans are used for recurring expenses of basic needs like rent, utilities, and food. Payday loans generate profit by creating a cycle of debt.
