Payday Lenders Have Found a Big Loophole in State and Local Regulation

Categories: Biz, City Hall

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A few weeks ago, the Texas Observer's Forrest Wilder went on a journalistic mission to a Cash Store outlet near his home in Austin. His aim, as he describes it, was to see what it was like to take out a payday loan in Texas, particularly in the wake of stronger regulations that Austin recently put in place.

Within 45 minutes, I had $1,500 in twenties counted out to me, arranged like a fan on the counter. The first payment of $408.72 was due in two weeks. I left the store with the money, but I was also confused. I had gone in looking to take out a payday loan but had left with something else.

"We don't do a payday loan," the Cash Store employee told me when I asked for one. "It's an installment loan." Indeed, small taped-up signs in the store stated that the Cash Store doesn't offer "deferred presentment transactions"--the technical term for payday loans--at its Austin locations. Moreover, the employee told me that they were "pretty good about loaning up to half of what you make in a month."

What Wilder found was that the Cash Store was skirting -- fairly blatantly but in an entirely legal manner -- the rules Austin and the state have put in place, ostensibly to crack down on payday lending. Austin's rules limit payday loans to 20 percent of one's monthly income; Wilder was offered twice what he makes in a month. They also cap the number of installments at four; Wilder was allowed 10. Wilder was also not provided with a state-mandated disclosure form.

The way the Cash Store was able to get around these rules was by having Wilder sign a photocopy of a blank check, rather than an actual postdated check. That meant that, rather than being a "credit access business," which falls under state and local regulations governing payday and title lenders, the Cash Store is a "credit service organization," which does not.

Chances are, this type of workaround isn't confined to Austin. That city's rules are more or less identical to those put in place by Dallas last year, and payday lenders here have already proven they're willing and able to skirt the rules. That's not to mention that the Cash Store Wilder visited is part of a chain that controls scores of outlets across the state, including five in Dallas.

Plugging the loophole will require a legislative fix, which State Sen. John Carona of Dallas, who chairs the Senate's Business and Commerce Committee, told Wilder he would try to do in the coming legislative session.

That won't be easy. Wilder says he picked the Cash Store at random, though one suspects his choice might have something to do with the fact that its owner, Irving businessman Trevor Ahlberg, is a prolific political donor who has contributed more than $1 million to candidates since 2004. And the fact that Ahlberg is an avid big game hunter who poses for photos in safari gear by dead elephants.

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38 comments
ruthellaowens
ruthellaowens

Say for instance, I am a self-employed loan shark. I "lend" you 20 today, I want 40 back tomorrow. I am going to be charged with a crime. I cannot take that to court to make you pay me, even with a signed contract. How many little players are in this shit? No, these are big guys. They have the funds to hire lawyers, lobbyists, accountants, legislators, etc. to rape, rob and pillage. I never knew there were so many blinded by bigotry folks.

tentonoon
tentonoon

If you need legislation to prevent you from borrowing more than 20% of your income from payday lenders, payday lenders are not the problem; you have seriously poor judgement. Nor should we continually pass laws upon laws, fixing loophole after loophole, to accommodate people that refuse to take responsibility for their own finances.

DOCensors
DOCensors

Next up: The Dallas Observer takes on predatory car lots!

DOCensors
DOCensors

So some helpful liberals should stand outside these places with buckets of cash and some signs that say "Don't go in here you stupid uneducated poor slobs we will pay your rent instead"

albert.finney000
albert.finney000

I wonder what the loan default rate is for these businesses, maybe a reporter will see this and find out for me, I'm too lazy.

DOCensors
DOCensors

"Wilder was offered twice what he makes in a month."

Uh, if this guy only makes $750 a month he might want to stop bothering payday loan places and start looking for a better job.

mavdog
mavdog topcommenter

These businesses are predatory, preying on those people who lack financial knowledge of the ins and outs of the transaction they are a part of.

the laws are not "badly written", the operator is savvy enough to hire counsel who advises how to circumvent the laws. happens every day in a multitude of businesses, after all an attorney isn't there to decide morality merely legality.

more needs to be done to combat these shady lending storefronts, who are nothing but vampires sucking the blood of the less fortunate in our society.

everlastingphelps
everlastingphelps topcommenter

Loophole: "How DARE they comply with our badly written law!!!"

hix.miblue.john
hix.miblue.john

Recommend that you do a real off street investigation of these pay day loan businesses. Are they each privately owned or are they members of a chain or franchises?  If a part of a chain, who is the corporate owner and who has stock or corporate ownership? What are their political connections or ties?  Find this out and expose it and you will also reveal why the legislature continues to let these business continue to get away with stealing from the poor and uneducated.  This is just another tool the state uses to keep the masses controlled.  And we know who owns the state.

uppercasematt
uppercasematt

"loophole" = scrupulously following the law.

"skirting the law" = moving out of the Dallas so as not to violate Dallas law (or choosing to do a legal less-regulated transaction in Austin rather than the overregulated one).

oakclifftownie
oakclifftownie

What you call a loop hole others might call  the workable parts of well crafted legislation

ruthellaowens
ruthellaowens

@tentonoon Are you also against SEC regulations. Should Madoff be allowed to get away with his theft? Were his investors guilty of poor judgement? Insurance fraud and disaster payouts, shoplifting, loan defaults, etc., do you think the company eats these losses. You must not be a financial wiz yourself, if you don't know the cost is passed on to you and me. I don't do a lot of stupid things others do, but I end up paying for it anyway in increased cost of goods and services.

forrest.wilder
forrest.wilder

@DOCensors That was an error in the article that has been corrected. They were willing to loan me more than half of my monthly income, not twice as much. The point remains the same, however: the city ordinances limit loan amounts to 20% of gross monthly income.

albert.finney000
albert.finney000

@mavdog - The customers are fully aware of the cost, its not deception, but they have no choice. Ya gotta wonder though how much property crime (theft) is due to these loans.

ScottsMerkin
ScottsMerkin topcommenter

@mavdog I dont get how they all can be construed as shady. when you know what they do and still use them, they arent being shady.  Not saying they are good places, but if you dont know what you are getting into you didnt read the docs you signed.  

TheCredibleHulk
TheCredibleHulk topcommenter

@everlastingphelps 

The word "comply" implies that they are trying to honor the spirit of the law, which I guess is to save foolish people from their own impulsive behavior.

In engineering we don't call it a loophole, we call it a workaround.

anon
anon

@everlastingphelps the laws aren't badly written. this would imply that there were unintended consequences. the point of this law was to make it look like politicians were doing something to curb those "evil" payday lenders who provide financing where no one else will, while preserving an industry that exists because poor people still need access to financing. and last I checked, the people who are most outspoken about payday lenders aren't lining up to help poor people keep their heads above water. 

anon
anon

@hix.miblue.john All those facts are somewhat easy to figure out. Not much reporting involved. The biggest payday lender in the country is Ace Cash Express, based in Fort Worth. It used to be publicly traded but was bought by JLL Partners. That's just one, but they pretty much all do the same thing. What other "reporting" do you want done that hasn't already been done on the industry?

I could say the exact same thing about the alcohol distribution business. It is an industry that literally exists by fiat because it makes a few people rich at the expense of the many and is kept in place by reinvesting the profits of government protection into funding elections of politicians in both parties. At least payday lending is providing a service while it skims.

DOCensors
DOCensors

@albert.finney000 Well, his bio sure paints him out to be a raving liberal, so he probably collects food stamps and other government aid while under reporting his income.

mavdog
mavdog topcommenter

interesting that you are able to read the customer's mind and conclude they are "fully aware of the cost".

if the business truly strove to have the customer as fully informed as possible, it is odd the business would go to such lengths to NOT conform with the Austin mandate on disclosure forms. The fact that the business would work so hard to get around the disclosure mandate shoots a big hole in your premise the customer is "fully aware".

just what association with "property crime...due to these loans" can you share with us? would be interested in actual facts and not conjecture such as your mind reading talent....

mavdog
mavdog topcommenter

reading the docs and understanding the docs many times is not the situation.

for the most part, these borrowers have little if any experience or previous relationship with any financial business, no banking account, no credit card, etc.

mere babies in the woods as it were, ripe for the wolf to pounce...

everlastingphelps
everlastingphelps topcommenter

@TheCredibleHulk @everlastingphelps The law here is statutory, and statues don't have spirits.  They are black and white.  It says what it says what it says.  

In engineering terms, the law is the spec.  If you meet the specs, you've succeeded.  They are meeting the specs.  If the legislature specced it badly, shame on them.

dungpie
dungpie

@DOCensors    The state of Texas takes money from the "poor and uneducated" and calls it a Lottery.

mavdog
mavdog topcommenter

odd but there isn't any suggestion that loans should be made "for free". just where do you see such a position taken by anyone?

simple question, do you advocate the end of usury laws?

mavdog
mavdog topcommenter

@albert

didn't read Wilder's article did you?

albert.finney000
albert.finney000

@mavdog - "Here's $100, you owe me $150 next week". Anyone who can't understand that is likely drooling in some institution.

ScottsMerkin
ScottsMerkin topcommenter

@everlastingphelps @ScottsMerkin @dungpie and the poor pay a higher percentage of their income for food and gas, I guess that should be illegal too?  Fuck lets just give them all money so they wont be poor anymore and it will all be fair.  People have a choice in what they choose to spend their money on.   And even if texas didnt have powerball, the poor would have found a way to get to oklahoma or louisiana to buy some tickets.

ScottsMerkin
ScottsMerkin topcommenter

@dungpie there were a lot more people than the "poor and uneducated" playing lotto last night

DOCensors
DOCensors

@anon @mavdog Exactly. Bleeding hearts feign like they give a shit about "the poor and uneducated" and tell everyone else how to live, what to do, who they can do business with and how but never actually lift a finger to help those people. 

anon
anon

@mavdog No, I don't. Because if the payday lender doesn't take advantage of the poor people who comprise its customer base, then the banks who charge overdraft fees (try calculating that APR), or the utilities that charge late fees, or the employers who fire them for not being able to make it to work because they can't afford to fix their car will do it for them. Poor people are in the unfortunate position of having pretty much only bad options to choose from. I support policies that attempt to mitigate the suffering of poor people through welfare assistance and training programs/education that would help them improve their job prospects and earning potential. But I don't see the logic in attacking companies that try to do business with them and help them choose from among the various shitty options they have on a daily basis.

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