Payday lenders are working hard to keep Texas the ‘Wild West’ in the Trump era
Texas is often referred to as the “far west”Predatory lending, an all-happening wonderland where payday lending and auto securities lending companies can charge low-income people sky-high fees every time they desperately need a cash advance for, for example, keeping the lights on or paying rent. Last week, payday lending groups filed a federal prosecution in Austin which aims to ensure that Texas remains a profitable location for industry.
The two business groups – the Consumer Service Alliance of Texas and the Community Financial Services of America, the largest national association of payday lenders – are suing to block new Consumer Financial Protection Bureau (CFPB) rules that advocates say would protect borrowers across the country from predatory lending practices, especially in Texas. the rules, finalized just before the Obama-appointed CFPB director resigned last fall, would force lenders to check people’s ability to repay loans and limit the kind of roll-over of late payments that can trap people in a cycle of debt. accumulation of debts. The lawsuit calls the rules “draconian” and insists that they “would effectively eliminate payday loans” across the country.
Advocates say the rules, originally slated for full deployment by summer 2019, are badly needed to protect borrowers in a state that has largely failed to regulate the industry. Payday loans, which can carry an effective APR north of 600% in Texas, are roughly banned in 15 states, but attempts to curb payday lending practices here have failed against a backdrop of regulatory and legislative Capture. The biggest push to cut predatory lending, in 2011, culminated with Rep. Gary Elkins, a Republican from Houston who owns a chain of cash advance stores, defending the industry upstairs from home in a sort of curdled version of Mr. Smith is going to Washington. Elkins denounced watered-down rules proposed by a lawmaker who then went on to continued to lobby for a payday loan company (a company which, it should be noted, later paid $ 10 million to address allegations that employees “used false threats, intimidation and harassing calls to intimidate payday borrowers in a cycle of debt”). Elkins’ payday loan shops were even among those that ridiculed the patchwork of local ordinances that have frustrated cities started to pass years ago to regulate an industry the legislature will barely touch.
After the failed reforms on Capitol Hill, advocates focused on cities adopting modest regulations that put limits on the size and frequency of lending. In the meantime, they were placing their long-term hopes on the CFPB. Now they fear the cities, at least in Texas, will be on their own.
“To date, the legislature has been unwilling to tackle this problem, and loose state standards have created a local crisis that cities cannot ignore,” says Ann Baddour of Texas Appleseed, a Austin-based non-profit organization that advocates for the poor. She said the CFPB rule would extend “basic standards” for payday loans across the state, surpassing progress made by advocates for local ordinances. (Baddour also sits on a CFPB Advisory board).
Baddour estimates that federal rules could have saved payday and auto title borrowers in Texas between $ 402 million and $ 432 million in 2016, compared with nearly $ 1.6 billion in loan fees collected by payday and loan companies. Texas auto titles that year. While lawyers for industry groups who sued the CFPB last week have not answered questions, including why the case was filed in Texas, it stands to reason that lenders fear the rules will end. a very lucrative open season in the state.
Federal payday loan rules seemed to be on shaky ground even before the trial. Last November, Trump appointed his budget manager, former Tea Party congressman Mick Mulvaney, moonlight as head of the CFPB. Mulvaney has spent much of his career in Congress denouncing the agency as a tax on the free market, so reformers aren’t exactly convinced he will protect the rules of the Obama era, let alone the integrity of the agency.
Under Mulvaney, who has already tabled a bill to abolish the CFPB, the office also dropped a case against online lenders who charge interest rates as high as 900 percent. Last week Mulvaney even openly waged war on his own agency during hearings before Congress. The trial may just be another nail in the coffin.
Baddour says that would let local ordinances fill the void. She says she often receives calls from poor people who are struggling to understand the growing amount of debt they have taken on in a time of desperation. Last week, Baddour heard about a woman who was struggling to pay off the $ 300 debt she borrowed from a cash advance store in Humble, which does not have a loan order. on salary. The woman had already paid more than $ 500 in fees but had not received the principal. The five-month loan repayment cost $ 972, an APR of 484%.
In their lawsuit, payday loan groups argue that these borrowers “fully understand the costs and risks of these products” but choose to use them anyway. They call regulations that limit lending practices “deeply paternalistic”. Baddour says that by opposing rules designed to reduce the debt cycle, payday lenders are actually revealing how essential this is to their business model.
“They say, ‘OK, we basically recognize this is an important part of our business model, but we think it’s good for people,'” Baddour remarked. “And if you’ve looked at any of those loan deals, that claim would be questionable at best. Frankly, this is absurd.