Texas payday loan
Payday lending activities have caught the nations second largest state in a snare. Lamentably, Texas has been one of the worst victims of high interest lending practices. Small consumer loans at usurious rates averaging occasionally at a whopping 800% APR, have left thousands of Texans debt-ridden. Although Texas constitutional and statutory laws have put a ban on usury, the act or practice of lending money at an exorbitant or illegal rate of interest, payday lenders
have ingeniously devised ways to dupe the laws of the land and spread its pernicious activities statewide. Even though payday lenders are quick to defend the philanthropic nature of their operations in bailing out cash-strapped individuals, they are in reality lending sharks preying upon the unassuming, poverty-stricken and marginalized section of Texas society. Consumers on the other hand lured into such high cost loans fall into the vicious cycle of loan renewals and piling fees that exacerbates their problem rather than diminishing them.
Payday loans Texas:
At a rudimentary level payday loans in Texas operate identically as in other states across US. Payday loans or cash advances as they are popularly called are handed by the lender in lieu of a signed post-dated check from the borrower that expressly reflects the loan amount and a fee for the transaction. The date imprinted on the check is usually 14 days from the cash advance. The lender holds the check and waits until the expiry of the loan term after which he cashes or signals his intentions to cash the check. Before this point the borrower can redeem the check by paying an equivalent amount in cash to the lender or must notify him beforehand to "roll over" the loan albeit with an additional fee.
The "fees" in payday lending terminology is the equivalent of the annual interest rate in traditional loans. Unlike them however, payday loans in Texas come with exorbitant APRs often ranging between 400 to 600%.
Coercive Collections Tactics:
Basing loans on personal checks leads some lenders to using coercive collection tactics. In Texas in particular, payday lenders are sometimes known to threaten consumers with law suits or criminal "theft by check" charges if the borrowers failed to keep up with the steep renewal payments. Military personnel likewise are threatened of court martial should they fail to cover payday loan checks.
The use of criminal hot check prosecution is a powerful tool lenders employ to coerce borrowers into loan renewals. The Texas Constitution bans imprisonment for loan debt. In spite of it payday lenders employ threats of legal proceedings against defaulting borrowers. The Consumer Union report of 2005 in an effort to secure the legal rights of Texans came forward with a plea whereby pursuits or threats to pursue hot check collections from defaulters may be made illegal by the Legislature.
Common Targets:
Payday loans in Texas in Texas are extremely popular among those who earn below $50,000 annually, the uneducated black community, military personnel and those with a small but fixed income. Besides people with damaged or no credit are found extremely susceptible to payday loans.
Speaking of Texas, four hours South of San Antonio is the unassuming "The Border", with a string of towns that teeter on the Mexican border. The only source of livelihood for denizens in this locale is menial industry employment and agriculture. In the small towns of Brownsville, McAllen and Harlingen some of its townsfolk subsist barely from paycheck to paycheck. This makes them ideal targets for payday lending. The payday clientele is heard as constituting mostly of shrimpers who barely manage to eke out a living, garment workers who work at Levi Strauss and Hanes factories and the fruit and vegetable pickers who live below the level of subsistence. Most that are sucked up into the scary whirlpool of payday lending are those limited by geography, race and color. Called anything from "payroll advance" to "deferred deposit" this 1 billion dollar industry has raised charges of gouging the poor from consumer advocacy groups.
Devious Tactics to Evade State Small Loan and Usury Laws:
Most payday lenders operate under a bank model using out-of-state affiliates to make loans. As per Texas laws lenders can charge 152.9% to 309% on loans taken for 14 days. By using federally chartered banks based out of Texas lenders charge annual percent rates in excess of 1,000% thereby evading Texas payday laws and swindling the borrowers. So a borrower obtaining a loan of $200 for 14 days by State law is liable to a maximum charge of $13.73 which is equivalent to 178% APR. But a survey conducted revealed that several lenders charged $35 to $68 for the loan which is equivalent to 450% to 880% APR.
Nearly 1,000 payday loan outfits currently operate statewide through partnerships with out-of-state banks. According to Consumer Federation of America citations, Eagle Bank in Texas rented its national bank charter to Dollar Financial Groups check-cashing operations to get around legal limits on payday lending. Check 'n Go, a payday loan chain operating through First Place Bank has the advantage of evading Texas small loan laws. First Place Bank by their own admission has a $1 million business in payday loan operations with Check 'n Go in Texas alone, and is planning an expansion to $10 million in other states.
Unabated Popularity of Payday Loans:
As in most states payday loans in Texas are popular in Texas. Easy qualifying terms make them more accessible to people with damaged or tarnished credit. No credit check in payday lending is an obvious plus. The documentation parts for such loans are simple enough- a proof of income and a valid bank account is all they need. Besides it is the fastest way to meet financial emergencies in case of unprecedented shortage of funds. Internet payday lending companies have also been operating with aplomb because of the impersonal method of obtaining loans.
Texas Payday Legal Stipulations,2005:
Payday loans have grown phenomenally in USA, especially in Texas. In the year 2000, payday loans with an interest rate as high as 570% was made legal in Texas. In an attempt to cut short abusive practices the state government repealed the laws governing payday loans in 2005.
Texas payday laws have now fixed the minimum tenure for payday loans to 7 days with a permitted maximum up to 31 days. The highest balance that may be owed by a borrower was not to exceed $520 with a monthly fee of $10.Thus for a loan amount of $520 the permitted APR is 48%. Texas payday laws allow for repeated loan renewals only if the loan balance declines with each repayment.
After-Thoughts:
In spite of the legal stipulations intended to frustrate payday operations there has been a consistent expansion of payday lending, predatory and sub-prime lending in the state of Texas. According to Fannie Mae, the nation's largest loan service provider, unstinted growth of fringe banking services has brought on a threat to the State's low and moderate income families wealth and asset growth. Obviously, Texas has to come a long way in educating the poor and the down-trodden about finances and viable alternatives to credit procurement; but until that day payday lenders are on the prowl.
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