Efforts swell to stop predatory loan practices
September 27, 2016
AUSTIN — In charitable ministries the high cost of being broke every day can be seen. The same stories of debt and despair can be heard throughout the state of Texas, where virtually no regulation means thousands of Texans are trapped in the never-ending payday and auto-title lending cycle of debt.
Payday loans are marketed as short-term small cash advances for unexpected costs. Typically, it is a two-week loan term and requires access to a debit account as collateral. An auto-title loan is similar, but your car title serves as collateral. If a borrower fails to pay off the loan in 30 days, the loan company takes the vehicle.
In Texas, almost one-third of clients of the Catholic Church's charitable ministries have outstanding payday and auto title loans. They are caught in a cycle of debt that is based on the premise that they will never pay off these loans. Research shows that about 80 percent of payday loans are re-borrowed within 14 days. Annual percentage rates can be as high as 500 percent.
The median income for Texans who use payday loans is $22,464. Borrowers often do not understand loan terms and don't realize that credit unions offer affordable alternatives.
As Bishop Placido Rodriquez of Lubbock explains, "Borrowers using payday loans are not shopping around — they are poor and desperate, and lenders capitalize on that desperation for huge profit at the expense of poor families."
The bishops have worked successfully with 35 Texas cities for local ordinances that regulate the payday lending industry, and have supported alternative lending models. In addition, the Texas Catholic Conference has partnered with Deidox Films to release a 30-minute documentary, "The Ordinance," and study guide for parishes and other community groups. Watch the film, get resources and screening kits at www.deidox.org/theordinance.
Please join the Texas bishops in reform efforts. The Consumer Financial Protection Bureau (CFPB) has drafted new regulations that are a good beginning. But these regulations have a few shortcomings. Please join us in providing comments on these proposed regulations before Oct. 7.
It's easy to do. Use http://bit.ly/2bxfmL7, a shortened URL that takes you to the correct page on www.regulations.gov to register your comments. Your comments must include the information "Docket No. CFPB-2016-0025." Please consider including these points:
The proposed CFPB rules are a step in the right direction because they will:
1. Strengthen standards regarding the ability to repay (in line with other consumer lending products);
2. Require centralized reporting of loan history to ensure compliance;
3. Require notices to consumers regarding collection practices and automated payment withdrawals;
4. Improve enforcement; and
5. Honor local ordinances.
The rules could be even more effective with a defined ability to repay standard, protections for alternative lending products, and the inclusion of service providers such as credit service organizations in the rule. Ability-to-repay standards are undermined by exempting six short-term loans in a 12-month period from the standards. All short-term loans should be made with an ability-to-repay assessment.
Loans from credit unions and community banks are the just alternative to predatory payday and vehicle title loans. To guarantee that individuals in a crisis have access to these loans, the rule should be streamlined so that credit services organizations and lenders are included in the proposed protections. The rules should exempt credit union products which cost less than 36 percent APR.
"We must halt the unscrupulous lenders from targeting the poor and most vulnerable among us," Fort Worth Bishop Michael Olson said in a statement recently. "In tandem, good local payday lending regulations and the proposed federal rules will greatly assist those in desperate financial straits from becoming hostages of unscrupulous payday lenders."
For more information, visit www.txcatholic-fairlending.org.
Jennifer Carr Allmon is executive director of the Texas Catholic Conference.