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Ruby Golden, a 62-year-old disabled Dallas hospital aide, owes so much money that she’s lost track of the amount. It’s somewhere in the thousands of dollars, she said, a sad result of her serial encounters with payday lenders.

“They got so much money from me,” she said. “I got tied up with seven of them. I was borrowing from one to pay the other.”

Payday lenders, with names such as Fast Cash and Ace Cash Express, usually operate from shopping centers and Web sites. They offer borrowers – often those with troubled credit histories, frequently behind on their bills – instant cash for short periods at rates far above what banks charge. On an annual basis, the interest rate on some payday loans can exceed 900 percent.

“It’s greed colliding with need,” said state Sen. Eliot Shapleigh, D-El Paso.

The state of Texas provides virtually no oversight of the business. Shapleigh and several other legislators have introduced bills that would regulate – or effectively abolish – payday lending in Texas.

Payday lenders have spent hundreds of thousands of dollars hiring Austin lobbyists and donating to legislators – and not for the first time. Shapleigh tried to pass bills regulating payday lending in the last legislative session, but they fell to the concerted efforts of lenders’ lobbyists.

They followed us like a pack of dogs,” he said.

In one year, Texas payday lenders make at least $2 billion in loans from more than 3,000 storefronts. They collect, by some estimates, more than $400 million in fees.

For the most part, the lenders cater to customers without access to bank loans or credit cards.

“It’s not like the banks are willing to do this,” said Xavier Dominicis, vice president for public affairs at Plano-based Rent-A-Center, which has 113 payday lending outlets in Texas. “The economy is circling the drain. If ever there was a time that consumers should be given greater options, this is it.”

BORROWERS are losing beds, TVs and washing machines after taking out short-term, high-interest “payday loans” they cannot afford to repay, say consumer advocates.

The desperate use of household items as collateral for so-called “predatory” loans - which can charge rates of more than 40 per cent per annum - comes at time of increasing debt and unemployment levels, and as new figures show the number of personal bankruptcies in Australia rose to a near-record high of 7164 in the first quarter of the year.

Payday lenders say they provide an essential service to borrowers in need. Critics charge they are taking advantage of the vulnerable.

“I spend all day talking to people who are crying.”

Ms Lane said her workload had exploded in the past few months.

“The term ‘payday loan’ doesn’t quite cover it, because no one can ever pay it off in two weeks.”

She said that lenders should be banned from taking security over beds and other household items.
‘You don’t feel good when people beg you’

But John Brady, national compliance manager of City Finance, which lends money to people who need to fix cars or buy a new fridge, says there are so few repossessions like that, “you’d be able to count them on the fingers of one hand”.

His typical customer borrows $1500 and pays it off over a year, paying a 43 per cent interest rate and application fee of up to $380. Customers have to prove income, but can still get a loan if they are on Centrelink, he says.

“We regard people who are on Centrelink as having just as much right to finance as people that are not on Centrelink,” says Mr Brady.

“We don’t lend to people who can’t afford to repay the money without any difficulty, so where they get their money from is of little concern.

“If someone has Centrelink income, perhaps supported by part-time income elsewhere, we don’t regard them as being out of bounds.”

People are also looking for quick cash by hawking laptops, ipods, phones and jewellery.

Pawn shop owner Sharbel Ayaub says business is up 50 per cent in the past six months.

One in five customers are unemployed, including one woman who regularly returns to pawn off her jewellery in a bid to keep her struggling business afloat.

“A lot of people come in here because they’ve lost their jobs,” he says.

Laptops, phones, ipods and gold are pouring in, in exchange for quick cash. Customers have three months to buy back their goods –at a 20 per cent interest rate per month – or it goes up for sale.

“A lot of people are ashamed to come in here. And they tell you they’re struggling” says Mr Ayaub.

“You don’t want to take people’s stuff, but that’s your business. You get people begging you, and you don’t like that. You don’t feel good when people beg you.”

The bills quickly add up

Borrowers get in over their heads when they turn to quick cash loans to cover electricity bills or car registration fees, says NSW Consumer Credit Legal Centre’s Ms Lane.

“I get a steady stream of people who go to fringe lenders, as I call them, and are on Centrelink,” she says.

Ms Lane says the problem is going to get worse as more people lose their jobs.

“We’re starting to see people who are unemployed. It only takes a few months until after you lose your job and you just can’t pay anything. Unemployment definitely leads to immediate financial distress. It gets very serious very quickly,” she says.

This week the Federal Government unveiled proposed laws to crack down on lenders who provide borrowers with unsuitable loans.

Lenders will have to obtain a credit licence for the first time and those breaking these new laws face criminal penalties.

The banks immediately hit out at the proposed laws, warning they make lenders overly cautious in issuing credit.

CEO of payday lender Cash Doctors, Nick Auchincloss, says they will only lend to people with jobs.

“We don’t believe in lending to people who can’t pay back,” he says.

The typical customer is female, working in an office, earning $40,000 a year and needs a quick $400 to cover a short-term bill or unexpected expense. The interest rate is 26 per cent.

“They do very much use us as a budgeting tool, they have a good grip on their finances, but something happens like their car breaks down. We all live on the edge of our finances,” says Mr Auchincloss.

He understands why payday loans are seen as extortionate.

“There’s no doubt our fees are higher than an average loan,”he says.

“It’s like a DVD that’s $7 a night. That would be $32,000 for the year*; you wouldn’t do it. But again, it’s quick, convenient, for a short while and the cost is worth it.”

*Thanks to reader input, news.com.au contacted Mr Auchincloss, who says a $7 per night DVD rental would be $2555 per year.

Re: “Instant cash — but it’ll cost you — High-fee loans go virtually unregulated in Texas. Proposed bills aim to change that,” last Sunday news story.
With the economy in a nosedive, it is particularly heartbreaking to see so many hard-working Texans trapped in a cycle of debt by what is essentially an unregulated loan with often usurious annual percentage rates.
Small wonder that many states are moving to rein in their operations. But in Texas, it’s still an uphill struggle just to get them licensed and regulated like all other players in the credit market. Texas law doesn’t even allow a state agency to investigate and resolve consumer complaints against these companies.
While the deck is stacked against consumers, there is still hope. AARP supports a bill by state Sen. Wendy Davis scheduled to be heard in committee the first week of May.
It is a sensible, pro-consumer measure aimed at bringing outrageous fees under control by creating a much-needed framework of state oversight for the industry.
Mary Scott, Bedford, president, AARP Texas

Four years ago, lawmakers and consumer advocates approved legislation aimed at reforming the payday loan industry in Illinois and keeping people from falling into too much debt.

They capped the interest rate on the short-term loans and limited people from having more than one loan at a time.

But advocates say even more changes are needed. While that law in 2005 capped some short-term loans, others, called consumer installment loans, weren’t.

Now, consumer advocates want the rates of those loans capped too, and they want other similar reforms to limit the amount of debt a person can take on.

“What I’m worried about is that they’ll find another loophole,” said state Rep. Julie Hamos, D-Evanston.

The industry’s position

The industry, though, doesn’t agree that their methods fall into a loophole, and they say they need high rates on short-term, high-risk loans in order to make money.

They largely agree with many of the reforms consumer advocates suggest, said Steve Brubaker, a spokesman for the Illinois Small Loan Association. For example, he said, the industry supports a database to assure people don’t have more than one short-term loan at a time and rules that limit how much you can borrow based on your income.

“That helps keep the debt down, manageable,” Brubaker said.

What they oppose, though, are caps on interest rates for the loans. There isn’t much common ground between consumer advocates and the industry on this point, Brubaker said.

Capping rates at too low a level could put some of the lenders out of business, said Americash CEO Jill Gruchot.

“When you put us out of business, where are these consumers going to go?” she said.

Emotions on the issue can run high. Consumer groups held a packed news conference in Springfield last week that included a contingent from Decatur. Speakers were occasionally greeted with applause.

Bruce Williams, a member of Decatur Central Christian Church, said the debt can be crippling.

“It’s another means of enslaving people,” he said.

Though she wants to cap rates, Hamos says she doesn’t want to shut down the industry. She said she understands some people run into situations where they need cash in a hurry, despite the interest rates.

Lawmakers have the rest of the month to figure out if there’s a middle ground.

“It’s still going to be pretty tough,” Hamos said.
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