Payday Lenders Are Using Texas Prosecutors to Collect Their Bad Debts

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The payday lending industry in Texas has managed to wrap its tentacles around just about every level of government there is, repeatedly killing any move toward meaningful regulation on the part of the state Legislature, skirting rules set up by municipalities, Dallas included, aimed at curbing its worst abuses, and, now, getting county prosecutors -- the people Texans elect to lock up thieves and murderers and rapists and such -- to carry water debt-collection notices for it.

The practice was uncovered over the summer by the Texas Observer's Forrest Wilder, who has established himself as the bard of payday lending coverage in the state.

Here's how Wilder explains the situation.

An Observer investigation has found at least 1,700 instances in which payday loan companies in Texas have filed criminal complaints against customers in San Antonio, Houston and Amarillo. In at least a few cases, people have ended up in jail because they owed money to a payday loan company. Even when customers avoided jail, the Observer has found, payday loan companies have used Texas courts and prosecutors as de facto collection agencies.

This is despite state laws that forbid payday loan companies from even threatening to pursue criminal charges against their customers, except in unusual circumstances. The law specifically prohibits theft charges when a post-dated check is involved. (Most payday loans require borrowers to provide a post-dated check or debit authorization to get the money.) The state Office of Consumer Credit Commissioner has advised the payday loan industry that "criminal charges may be pursued only in very limited situations" where it can be proven that a borrower knew a check would bounce.

See also: John Carona's Payday Lending Reform Crashed into a Wall of Lobbyists Today

Bad debts are supposed to be handled through civil processes, debt collection agencies or lawsuits. It's the American way. Yet at least some payday lenders -- Wilder singles out The Money Center in San Antonio, and Cash Biz near Houston -- have managed to persuade district attorneys' offices to take their cases.

The question is why. The answer, as always, is money. As Grits for Breakfast explains, if prosecutors treat unpaid payday loans as hot checks, their office gets to keep the cash that's collected.

Like asset forfeiture, hot check collection produces a slush fund that elected prosecutors can use however they want. According to a TDCAA primer on the subject from 2008, "The statute gives the elected prosecutor sole discretion over expenditures from the hot check fund; the elected is not required to get approval from the commissioners court to use the funds." So there's a tacit economic incentive for prosecutors to look the other way when payday lenders attempt to use them for purposes of debt collection. It helps them grow their slush fund.

Over time, prosecutors have successfully lobbied to use hot-check funds for just about anything (except supplementing the pay of elected prosecutors themselves). "Originally, the Legislature envisioned the money would be used to defray the costs directly attributable to the prosecution of hot check writers, but the spending guidelines have expanded over the years," according to the TDCAA primer. Further, TDCAA emphasizes that, "if a defendant has written several hot checks, there is nothing to prohibit you from collecting a fee on each check." So in aggregate, hot check fees can rack up pretty quickly.

See also: Regulators Warn Payday Lenders to Stop Blatantly Exploiting Loopholes or Risk Losing Them

The Texas District & County Attorneys Association has warned its members against doing the bidding of payday lenders. From the other side of things, the Office of Consumer Credit Commissioner issued an advisory making clear that payday lenders "should not use a district attorney's hot-check division simply as a means for collecting on delinquent loans."

Maybe they'll heed the advice, but both parties have a built-in financial incentive not to. Maybe the Legislature will have found some backbone come 2015.

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23 comments
paulpsyco78
paulpsyco78

David: That's right, Bob. Listen to your friend, a person who makes more money than you, is better than you, and therefore beyond criticism. This is called the Worthington Law and it's used to gauge the value of human worth.

holmantx
holmantx topcommenter

Any comment on the breaking national ACA navigator sting here in Dallas?  Abbott says they will investigate.  Odd that it is not being covered locally.

Would you turn your personal, medical and financial information over to a felon?  These are the people the President recommended we hook up with since his website is down.

The same bunch who commit voter fraud.


msbcez
msbcez

Its disgusting that so many people have such contempt for their fellow man, that strictly for small sums of money they see no wrong, and feel no guilt in ruining peoples lives by sending them to prison, by manipulating the system.  Far too many attorneys have no soul, always seems to be more about their numbers and the money, than keeping the right people out, and putting the wrong people in prison (lol that sounds bad, lets say the right people IN as well).   Im not religious but maybe it was the few times i went to church as a child, that programmed me into giving a shit, and feeling bad about playing a vital roll in ruining someones life... Obviously these people are high risk, or they'd goto a bank, obviously already in debt or incapable of getting credit, the Payday Loan folks take advantage of that personal flaw. They seek high risk but large short term gains in sky high interest rates.  Now they look to eliminate the risk of the high risk investment, by saying pay us OR ELSE, to the folks they already KNEW would very likely have a very tough time paying them back the original sum, let alone that plus the interest.  We ever gonna start actually sending the lawyers and politicians to jail for manipulating the system to get rich?


Hulon_Pate
Hulon_Pate

Unsecured Loans companies that the banks help set up these high risk ,low income type loan companies. A data base  of information with pictures should be set up to see who is helping these loan sharks and have helped to create yet again a debtors prison. Just when you thought poverty could not get any worse. Cause it's all fun and games till you go to jail for being too poor. 

observist
observist topcommenter

This is another example of asset forfeiture laws incenting corruption.  Prosecutors and police are literally stealing money from innocent people and spending it on military toys and office parties.  In this case the prosecutors are taking time away from legitimate criminal prosecutions to act as private collection agents so they can take a cut and spend it on themselves (while technically not paying themselves).  These abuses of civil asset forfeiture, especially along interstate corridors, are really outrageous -- ALMOST enough to make me get off my internet-commenting ass and try to do something about it.

paulpsycho78
paulpsycho78

Poor folks have had it too good for too long...The Cash Store CEO gets laughed at every weekend by the top brass at Citibank because his yacht is under 200 feet long.  This atrocity cannot be allowed to stand.  Folks listen to me, if our upper crust have to go from being super rich to just rich they'll kill themselves and nothing will trickle down to us appreciative members of the fiefdom.

holmantx
holmantx topcommenter

Banks aren't going to loan $200 for a couple of weeks to a crowd with a 40% default rate at 12%.  The paperwork and admin costs ALONE prohibits such a short term loan based upon APR caps.  

It does not compute.

So what those of you are saying is, we should legally bar people from loaning $200 to a wage earner to promises to pay back $250 in a couple of weeks.  

Well tough shit.  This commerce is going to take place anyways because there is a tremendous pent up demand for short term, stop gap loan.  That's how you should look at this.  NOT on annual percentage rate comparisons.  Look at it on whole dollar amounts.  That's how the user of this finance looks at it because that is how it is in reality.  Yours is but an esoteric (and silly) argument.

And you people shaking your finger at those who need precisely this kind of loan are no better than the DMN Ed Board lecturing the rest of us with a kind of whiney mewling that makes us run screaming from the room.

Completely devoid from reality, broadcast from somewhere near White Rock Lake.


ScottsMerkin
ScottsMerkin topcommenter

baiscally, if the lender fucks you, arbitration is your only shot, but if you fuck them, welp,  they will try to ruin your life.  Payday lenders are nothing but legalized loan sharks

paulpsyco78
paulpsyco78

@msbcez David: That's right, Bob. Listen to your friend, a person who makes more money than you, is better than you, and therefore beyond criticism. This is called the Worthington Law and it's used to gauge the value of human worth.

paulpsyco78
paulpsyco78

@Hulon_Pate David: That's right, Bob. Listen to your friend, a person who makes more money than you, is better than you, and therefore beyond criticism. This is called the Worthington Law and it's used to gauge the value of human worth.

James080
James080 topcommenter

@oakclifftownie  

That's correct. They paid for that public service by paying off the necessary politicians. Just like Yellow Cab paid off the necessary Dallas politicians to gat away with carrying self insurance instead of 3rd party insurance as required by city code. They paid for that perk, and now the mayor, city attorney and other are doing their "I known nothing" dance while the checks keep rolling in. Wonderful system of government we have.

TheCredibleHulk
TheCredibleHulk topcommenter

@holmantx 

I don't give a shit if these places want to loan money to people that they know have a high risk of not repaying them. That's just fine - but why should their shitty business model be subsidized by the rest of us by using our legal system as their de facto enforcer?

Tipster1908
Tipster1908

I'm perfectly comfortable with the existence of the payday lending industry. But if they want to make loans to people who have a high likelihood of not being able to repay, they need to sue their customers in civil court to try and get paid back, just like anyone else who claims that someone owes them money.

P1Gunter
P1Gunter

@holmantx I have a buddy that used to work at The Cash Store up in Denton to pay his way through college and his stories were absurdly depressing. While I advocate personal responsibility, the way they screw their customers really is insane. And the fact that they've been popping up everywhere tells me they are screwing over a lot of people. If you need a short term loan, go to a pawn shop  and pawn or sell something like people have been doing for centuries. Generally much more reasonable rates.

holmantx
holmantx topcommenter

I can agree with that however, unsecured loans will just be pushed back into the alley.

WhiteWhale
WhiteWhale

@holmantx With these payday creeps they are not to far out of the alley plus their collection is being subsidized by the public dime

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