Maybe bishops and ministers can shame Austin into action on payday loans.
For years, consumer advocates have been calling for lawmakers to rein in these high-cost loans targeted at the working poor. The short-term cash advances pile up fees and often overwhelm borrowers, who are predominantly minorities.
Seventeen states have reportedly reformed payday lending, and the movement has gained momentum in the past five years.
In November, voters in Montana — not exactly a liberal outpost — overwhelmingly approved a measure to cap payday loans at 36 percent a year, the latest evidence of national sentiment.
In 2006, Congress set the same 36 percent maximum for the military and their families. For many, the federal move provides a closing argument for reform: If the nation’s service members deserve extra protection from these practices, why not the rest of America?
Don’t hold your breath waiting on Texas. The effective rate on payday loans here is literally unlimited, and demand is growing from strapped customers who need cash to hold them over until the next paycheck. North Texas has become one of the centers of the industry, with Cash America International, First Cash Financial Services and Ace Cash Express based here.
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In Austin, the industry typically runs out the legislative clock or finds a loophole to operate outside regulations that cover other lenders. With a super-Republican majority in 2011, plus a concentration of payday companies in the state, you wouldn’t expect a serious challenge now.
Except that religious leaders have joined the fray. Catholics, Baptists and other religious leaders are making a moral, ethical argument — and an economic one.
“We do not have the resources to line the pockets of the payday lending industry,” Bishop Joe Vasquez of the Austin Diocese said at a news conference last week.
He cited a survey showing that 1 in 5 people statewide who received help from Texas Catholic Charities had payday and car title loans. Half of those recipients said the loans forced them to seek help in the first place. In effect, Vasquez said, the church would give $300 to a family to cover utility bills, only to learn that the family had to pay $455 in payday loans.
In the Fort Worth Diocese, Catholic Charities provided $800,000 in assistance to residents struggling with payday loans and car title loans, said Kelly Rand, a program manager. While the agency counsels people on managing finances and becoming self-sufficient, she said the loans often become a debt trap.
“It’s expensive being broke,” Rand told a House committee last week, which is considering several bills.
Nationwide, about 12 million people take payday loans. In Texas, about 10 percent of the population has had them, and about 8 percent have had car title loans. Both operate in a similar fashion, but borrowers can get more money and up to a month to repay if they provide a car title as collateral.
A typical payday loan is for $300, due to be repaid in two weeks. Borrowers pay about $61 in upfront fees, with the loan due when their paycheck arrives. But borrowers often can’t pay in full and have to roll over the note for another $61.
It’s not unusual for a $300 loan to be rolled over many times and ultimately cost more than $800 in principal and interest, says the Center for Responsible Lending, a North Carolina advocate for reform.
It cites one extreme example: a 69-year-old man, who initially borrowed $200 from a payday lender in Raleigh, N.C., and returned to the lender every payday for five years. The loan was flipped more than 100 times, and the borrower ultimately paid more than $5,000 in interest and fees.
The payday industry disputes the consumer agency’s estimates and says the math is faulty. It also says the costs of its short-term loans should be compared with the high fees for bouncing checks, missing payments on credit cards and disconnecting utilities, because the loans are often used to avoid those expenses.
