Millions in Pandemic Relief Funding for Texas Payday Lenders

Even as their ultra-high interest rates lock vulnerable consumers in debt, many short-term lenders get government assistance.

Three Texas congressmen were among those who pushed for taxpayer-funded subsidies for payday and car-title loan providers last April. These loans, which can have effective annual interest rates of 500 percent or more and are widely criticized for preying on the working poor, the less educated, and military service members, can carry effective annual interest rates of 500 percent or more. Loans under the Paycheck Protection Program were not initially accessible to such lenders as part of the federal government’s coronavirus relief efforts. On the other hand, the industry brought the case to court and used its political clout in the process.

Two Texas Republicans—Roger Williams, who covers a span from Fort Worth to Austin, and Dallas County’s Lance Gooden—were among the 28 signatories on a letter to then-Treasury Secretary Steven Mnuchin, as were South Texas’ Henry Cuellar, one of just four Democrats to sign on. The payday lending business has contributed to all three candidates’ campaigns.

The letter expressed support for including “small-size nonbanks” in the PPP program, a statement that was subsequently expressly affirmed by Missouri Congressman Blaine Luetkemeyer.

Ultimately, the PPP would funnel millions of dollars to Texas payday and title-loan firms, money that would not have to be repaid. The most important was that the funds be used to pay workers. Texas Monthly found at least fifteen PPP recipients. Consider this scenario:

  • Servinghoma (located in Dallas) secured a $944,40Care Cash ExpresCare Cash Express s 0 federaCare Cash Express l loan.
  • Care Cash Express, which serves the Houston suburbs of Clute and Rosenberg, was awarded $69,400.
  • Action Credit Express, doing business as Action Express Loans from Edinburg to El Paso, received $195,300.
  • Approved Money Center, located in Austin and McAllen, was awarded $267,400.

Despite several requests for interviews, none of the four firms replied.

Because of the labyrinth of a parent or holding companies under which ultrahigh-interest lenders are typically legally registered, as well as the ways the firms are often self-categorized in SBA statistics, it’s difficult to say how many got the subsidies.

According to a study issued last week by the Austin group Texas Appleseed, the PPP has sent $20 million to payday and title-loan lenders licensed in the state but not necessarily established there. When Texas Appleseed took into account loans made via the Federal Reserve’s Main Street Lending Program (which, unlike PPP loans, are not forgiving and must be repaid), it found $45 million going to these lenders.

Federal Cash Advance, often known as CashMax, provides loans with annual percentage rates ranging from 400 percent to 700 percent. Consumers may get trapped in a tortuous cycle of paying hundreds of dollars in fees each month without touching the loan’s principal and frequently without comprehending the one-sided conditions of the contract due to the way these loans are constructed. According to disclosures on CashMax’s website, a $1,000 loan paid back fortnightly over five and a half months may cost $4,226.02 in interest, fees, and principle.

Such loans may add salt to injury for disadvantaged people that lack the education, assets, or money to access alternative types of finance. At the same time, they live paycheck to paycheck during the coronavirus pandemic’s harsh economic circumstances. Meanwhile, the PPP loans these lenders obtained are forgiven as long as they are utilized for payroll.

“A loan structure that’s structured to be successful even if a borrower fails, because of the way they’re put together—not that’s something that creates communities, it’s not something that supports the economy,” says Ann Baddour. The latter runs Texas Appleseed’s Fair Financial Services Project. “This has occurred at a moment of stress, and I believe it is a tragedy.”

According to the campaign finance monitoring site Open Secrets, none of the three Texas lawmakers who announced support for the business last spring got nearly as much campaign cash as Cuellar. The lawmaker, whose district runs from San Antonio south to Laredo and along the border, received $37,100 from the industry during the 2020 election season, more than any other member of Congress. Williams has earned $45,850 from the sector since taking office in 2013. Meanwhile, after being elected in 2018, Gooden has only accepted $3,000 from payday lenders. 

The industry’s clout extends beyond the governmental leveGooden l. In 2014, the HBO series Last Week Tonight With John Oliver focused on the Texas Legislature’s response to payday lending, triggered by Houston state representative Gary Elkins’ statement opposing planned legislation. Elkins controlled a dozen payday loan shops at the time. “Apparently even clusterf—s are greater in Texas,” Oliver concluded in his research. Elkins did not reply to demands for an interview, despite previously telling the House that his lobbying “isn’t about my business” and that he’s “not embarrassed of what I do.”

PaydayNow Payday lender in Texas aren’t technically lenders at all. Instead, they operate as “credit-access firms,” a categorization defined by the 1987 Credit Services Organization Act, which seems to be a good-faith attempt to safeguard Texas customers. The payday loan business worked out to get around the state’s 10% usury restriction by twisting the new distinction.

Elkins, a Texas congressman from 1995 until 2018, when he lost his reelection campaign, was a trailblazer in this area. His Power Finance Texas firm started acting as a middleman between the borrower and the lender, charging hefty fees in the process. The approach, which still exists today, is intended for payday loan businesses to outsource actual lending to other parties. According to the company’s website, a borrower pays $351.20 in fees to CashMax and $11.10 in interest on a thirty-day payment for a $1,000 loan. In 2004, the Fifth Circuit Court of Appeals ruled favor Elkins’ firm, finding that usury rules do not apply to fees as long as the prices are not contingent on the third-party lender’s cut. The methodology was also recognized by the Texas attorney general in a 2006 judgment.

According to Texas Appleseed, registered payday and vehicle title loan businesses increased from 250 in 2004 to 3,400 in 2011. “There were so many of them,” Baddour adds, “and they were operating in this Wild West where there was practically no monitoring.”

As a result, calls for additional regulation became louder, and in 2012, state legislation was passed demanding more public fee declarations and establishing a new licensing procedure. However, the Legislature did not address the fees that businesses charge customers or the payment systems that enable individuals to make excessive payments for months without impacting their loan principal. The industry’s hefty fees are still in place.

“What’s intriguing about this one is that there isn’t a natural proponent on the ground,” says San Antonio Democrat Diego Bernal, who presented Texas House Bill 206, another effort to regulate the sector, last autumn. “Every single individual, every single one of our neighbors, despises the way these corporations operate.” The only supporters they have are those in the Legislature to whom they contribute large sums of money.”

The distinction between industry executive and lawmaker vanished entirely in the instance of Elkins. According to the Texas Office of Consumer Credit Commissioner licensing data, his Power Finance franchise lends cash at rates high as 790 percent APR. The parent firm of Power Finance, CPCWA, got a $708,900 PPP loan.

Even more, money has gone to debt-collection firms than has gone to lenders like Power Finance. PPP loans were given to 126 debt collectors in Texas, totaling around $32 million in government funding. This figure is likely low since several debt collectors applied via their parent businesses as part of other sectors.

Several Texas debt collectors who have accessed this money have received numerous customer complaints. Credence Resource Management and ProCollect, both situated in Dallas, got a total of 1,463 and 1,124 complaints during the same period, respectively, and collected $404,000 and $530,000 from the government program last year.

Since 2016, 11 of the 46 Texas debt collectors that have received at least $150,000 have accumulated one hundred or more complaints. The majority of these complaints include collecting a debt that the customer claims they do not owe. However, concerns concerning the firms’ communication practices and threats are also widespread. “This is an appalling show of greed, ProCollect. One common complaint reads, “Here I am on a limited income, and you’re attempting to collect on a nonexistent fraudulent debt from an apartment complex I haven’t lived in for over four years already.”

“They’ve been calling incessantly.” One complaint about Credence Resource Management says, “I beg them not to phone me, particularly while I’m at work.” “I was nearly fired because of the phone calls.”

Requests for interviews with Credence Resource Management and ProCollect were not answered.

Last month, the Washington Post published an investigation into coronavirus relief funds moving to payday lenders and debt collectors, uncovering more than 1,800 cases totaling $580 million in government assistance throughout the US. Capio Asset Servicing, based in Sherman, was the subject of a federal and state investigation last year, leading to claims against them in a September lawsuit filed by New Mexico attorney general Hector Balderas for alleged abusive collection practices and attempts to collect debts that were not owed. According to the Post, the two parties have subsequently begun settlement negotiations, and Balderas has dropped his lawsuit.

On January 13, the SBA started accepting applications for the second round of PPP loans. This time around, organizations “whose stock and trade is finance or lending” are “usually, and I need to qualify this,” a government official told the Post. Making matters even more complicated, the official stated that “we are aware” of payday lenders while failing to elaborate.

Those words are likely of little comfort to the payday lending industry’s critics, who were dealt another blow in Texas in 2019 when Attorney General Ken Paxton’s office ruled that products referred to as “personal” or “signature” loans can be offered without a license. Paxton is on trial for securities fraud. According to Baddour, they are loans with conditions that are “just like a payday loan.” “It’s simply that it may not be secured the same manner.” While payday loans sometimes need a consumer’s income as security, Power Finance, according to its website, provides an unsecured personal loan.

Critics of the ruling say it helps lenders stay ahead of the 46 Texas municipalities that have attempted to regulate credit-access businesses, such as Houston, San Antonio, Dallas, Austin, and Fort Worth, by limiting the number of payments allowed under the loan’s structure so that borrowers aren’t trapped in high-fee water without paying down the principal. Dallas and Austin recently updated their legislation to remove a gap that permitted “personal” or “signature” loans to circumvent the city’s restrictions. TitleMax of Texas has filed a lawsuit against Austin over its ordinance.

When he was a member of the San Antonio city council in 2012, state representative Bernal helped enact a law regulating payday lenders. To some extent, it worked. He claims that the number of such lenders’ shops reduced by around half in a few years, but some just migrated to other areas. Bernal thinks statewide legislation is needed, but he believes it will be difficult to pass during the current legislative session due to the industry’s disproportionate influence in Austin. Despite this, he is optimistic that the pandemic-induced recession will tip the political scales in his favor. His plan would force credit-access companies to consider a borrower’s capacity to repay a loan and limit the total number of installments to four, with at least 25% of each amount going toward paying down the loan’s principle. He argues that it would be a step in the right way since credit access firms would be able to provide loan conditions that are “at least not outrageous.”

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