Borrowers, lawmakers grapple with payday loan services

McALLEN — Maria needed to get money fast to make a mortgage payment and avoid losing her home.

So two years ago she went to a payday loan business and received $375.

Her payments were $75 each month — and she’s still paying back the original loan.

Her problem escalated. To pay off the first payday loan business, she went to another. Then, to pay off the others, she went to a third.

Now she owes money to five payday loan businesses, and she’s drowning in debt.

Maria lost her home anyway, said Marla Lutz, a senior certified consumer credit counselor with Green Path Debt Solutions, formerly known as Consumer Credit Counseling Service of South Texas.

The nonprofit organization helps people get out of debt.

Lutz said she and her colleagues see victims of payday loans every day.

Many payday loan businesses in Texas charged an annual percentage rate (APR) of more than 500 percent in 2009, according to appleseednetwork.org. The current rate in Texas is 309 percent.

Appleseednetwork.org, a group comprising 16 public interest justice centers in the United States and Mexico, said the average payday borrower will pay $840 for a $300 loan, and until the loan is paid off, a $60 monthly fee is assessed. Most borrowers take nine months to pay off the original loan.

There are more payday loan business in the United States than there are McDonald’s franchises, Lutz said. Some published reports, however, suggest there are more payday loan businesses in the country than McDonald’s and Burger King restaurants combined.

“They are popping up left and right, payday loan places,” said Melissa Goonan, director of education and outreach for Green Path.

In the past, the Texas Legislature has attempted to regulate the practice of payday loans, and it recently passed a law requiring some of the businesses to be licensed through the state’s Office of Consumer Credit Commissioner.

Although the Legislature passed two laws related to payday loans during its latest session, the most controversial bill failed, according to Leslie Pettijohn, the state’s consumer credit commissioner.

House Bill 2592, which passed, requires more noticeable disclosures regarding fees and interest rates. House Bill 2594 requires both payday and car title lenders to be licensed and regulated by the state.

But House Bill 2593, which would have provided some limitations on the product — like loan amount and number of renewals — did not pass, Pettijohn said.

Portions of the bills that passed will take effect Jan. 1, 2012.

“They will have to meet certain qualifications to get a license,” Pettijohn said, “and there will be prescribed disclosures that they have to give to consumers before they enter a loan.”

The agency is still working on the details of the new requirements.

The commissioner will gather the information to present to legislators.

“We will also be gathering data about the business and reporting that back to the Legislature so they can determine whether to make other adjustments in the market,” Pettijohn said.

Other aspects of the laws take effect Sept. 1, Pettijohn said, adding that anyone with a complaint should call the consumer credit commissioner’s office at (800) 538-1579.

But for Lutz, who sees the problem with payday lending on a daily basis, more needs to be done.

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Martha L. Hernández covers health, business and general assignments for The Monitor and El Nuevo Heraldo. She can be reached at (956) 683-4846.

PREDATORY LENDING

The practice typically involves imposing unfair and abusive loan terms on borrowers, and statistics show that borrowers lose more than $25 billion annually because of predatory lending practices.

Predatory lending can be detrimental to consumers and increases the financial and reputation risk for financial institutions. Characteristics potentially associated with predatory lending include, but are not limited to:

1)     abusive collection practices

2)     balloon payments with unrealistic repayment terms

3)     equity stripping associated with repeat refinancing and excessive fees

4)     excessive interest rates that may involve steering a borrower to a higher-cost loan

Source: FDIC Office of Inspector General’s report