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Mike hopes to see the world turned upside down through local communities banding together for social change, especially churches which have recognized the radical calling to be good news to the poor, to set free the prisoners and oppressed, and to become the social embodiment of the reign of God on earth as it is in heaven. He lives with the blessed memory of his wife, in Durham, NC, and has three adult children living in three different states. He also shares his life with the Mt. Level Missionary Baptist Church in Durham, the faculty and students of Shaw University Divinity School in Raleigh, NC, and the faithful fans of Duke and Baylor Basketball in his neighborhood.

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Monday, February 21, 2011

It's a Nationwide Fight Against Predatory Payday Lending

For numerous years, a fight has been going on from state to state and on a national level to curb and stop usurious payday lending.  This loan-sharking business exists by finding the cracks in the laws.  They hire sophisticated lawyers to find the legal loopholes, and slick PR firms to explain why they fill a need in the credit market.  They prey on desperate people and pretend to be a friend of the people who need credit.  The real nature of their business, however, is to be debt sharecroppers.  They gain an interest and claim on a person's future income in perpetuity.  It is a business designed to entrap borrowers so that they can never get out of debt.

I'll get a chance to speak about this predatory business at a public hearing on Tuesday, February 22, at the Texas Senate Committee on Business and Commerce.  I am impressed with the work of Texas Faith for Fair Lending, at whose invitation I will be speaking.  Some of these folks are the ones I used to work with as a wet-behind-the-ears seminary graduate in the mid-1980s.  In those days, these organizations were working to protect and provide for children in poverty and trying to hold off the tsunami of state-sponsored victimization through gambling businesses.  Suzii Paynter of the Texas Baptists Christian Life Commission will be part of the fight, and I am proud to get to work with such a distinguished drum major for justice.  The quoted material below comes from the Texas Faith for Fair Lending web site.  You can read the original at this link.

Payday Lenders and Car Title Lenders Evade Existing Texas Lending Laws

Although Texas lending laws provide generous regulatory and fee structures, payday lenders and car title lenders sidestep these provisions by posing as credit services organizations (CSOs), giving them an unfair advantage in the lending landscape.  As CSOs, payday and car title lenders operate outside of the bounds of the rules set for all other consumer lenders in the state and exploit a state law designed to protect consumers from seeking credit repair help. Both payday and auto title lenders could operate under Ch. 342.  For the smaller loans, auto title lenders could use the rate computations under 342F (or 342E).  For larger loans, they could operate under 342E.i

Below is a comparison of Texas's existing lending law which payday and car title lenders evade, and a snapshot of their abusive practices permitted by the CSO loophole.

It's Time to Level the Playing Field. 

The state's CSO statute was designed to protect consumers from abuse when seeking credit repair help, not as a vehicle for loans that result in long term indebtedness.  After more than 5 years of permitting this evasion of state law to continue, it is time for legislators to close this loophole, and ensure that these lenders operate under the Texas lending laws in place for all other consumer lenders.  It's time to close the loophole.
i The maximum loan under subchapter F is $1,240.  Under subchapter E, loans of up to $15,000 may be made.

ii Under existing Texas lending laws, finance charges for payday loans are set by the Texas Office of Consumer Credit Commissioner (OCCC).  Texas OCCC's authority to set these rates comes from TFC § 342.007, which allows the finance commission to establish rules for payday loans, and in TAC § 83.604(c) which incorporates the fees by reference.  For current Texas OCCC rates, see http://www.occc.state.tx.us/pages/int_rates/Index.html and click on the link for “Deferred Presentment Transaction Rate Charts.”  However, instead of complying with this law intended for them, payday lenders operate as CSOs, for whom there is no limit on finance charges, and rates reach upward of 500% APR (and higher) fur a loan that typically has a 14-day term.

iii Under existing Texas lending laws, car title loans can carry finance charges consisting of a $10 set fee, plus $4 per $100 a month installment charge.  Car title loan finance charges are authorized under TFC § 342.253, which incorporates the fees permitted by TFC § 342.252 (3).  In addition to these finance charges, under existing Texas lending law, TFC § 342.502 (b) (5) expressly permits a “fee for recording a lien on or transferring certificate of title to a motor vehicle offered as a security for a loan.”  (The recording fee is not included in APR calculations because they are excludable from inclusion in the finance charge under the federal Truth in Lending, Act, Reg. Z § 226(e) (l).)  However, instead of complying with these state lending laws intended for them, car title lenders operate as CSOs, for whom there is no limit on finance charges, and rates reach upwards 300% APR fur a loan that typically has a 30-day term.

iv Regardless if the cost is classified as "interest” or “fees” under state law, the cost to the borrower is the same.  The federal Truth in Lending Act requires that both interest and fees be combined and disclosed to borrowers as an Annual Percentage Rate (APR).  Federal law requires the cost of the all credit to be disclosed in terms APR, regardless of whether the loan is for two weeks or two years.

v Existing Texas laws expressly permit payday loans to use a borrower's post-dated check as collateral for the loan, and expressly permits car title loans to use a borrower’s title to her car as collateral.  For payday loans, see TAC § 83.604 (b) (“The check given in the [payday loan] transaction may serve as security for the payment of the loan.”).  For car title loans, car title as security is not expressly prohibited under TFC § 342.503 and is stated as a permitted practice for authorized fees in TFC § 352.502 (b) (5).  However, even though the CSO statute does not expressly allow any of these collaterals, these payday and car title lenders operating as CSOs use checks and car titles as collateral respectively, as well as electronic access to a borrower’s debit account and a letter of credit issued by the CSO.

vi Under existing Texas lending law, payday lenders and car title lenders, just like all other consumer lenders and brokers, are subject to oversight by the Texas OCCC.  Although CSOs are subject to private litigation and oversight of the Attorney General, these provisions have proven insufficient to protect consumers against abusive high cost lending.  CSOs are the only entities engaged in consumer lending transactions that escape oversight and compliance requirements of the OCCC.
I'll let you know how it goes.  This will be a first for me.

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