There are few legal enterprises in this country as despicable as the payday-loan and rent-to-own businesses. They share the same parasitic business model -- one that achieves maximum profit potential the more desperate and/or unsophisticated a consumer is.
That's partly why Houston and other cities throughout Texas have regulated these businesses, and why Woodville Republican state Rep. James White has introduced a bill to implement some of those regulations statewide. Thing is, this would affect the bottom line of his fellow lawmaker, Rep. Gary Elkins of Houston, whose bottom-feeding Power Finance Texas chain somehow manages to skirt usury laws while charging APR rates between 739 and 792 percent.
The Dallas Morning News called White's bill a step toward cracking down on payday lenders' "game of cat and mouse." White's bill, per the paper's editorial, "would make it illegal for a payday business to refinance a loan more than three times, and would require 25 percent of each repayment from a consumer be applied to reducing loan's principal." The bill "would prevent lenders from rolling over a typical $500 loan five or more times, each time tacking on fees that multiply the debt and cost thousands of dollars more than the customer originally borrowed."
Elkins, the Texas Observer pointed out in 2014, has "fought strenuously at the Legislature and in court to prevent any new regulation of the industry." The story also quoted him as saying, "[I'm] not ashamed of what I do," which says a lot about the mental gymnastics in which some folks engage. (We'd actually have a lot more respect for Elkins if he felt ashamed. Or embarrassed. Or some odious combination of the two).
For a little background, Power Finance Texas's fees work like this: For a typical loan, a consumer pays $30 per $100 borrowed. Borrowing $300 will cost $90, plus a negligible "lender interest" charge. Once you borrow that $300, the first payment is due on the date of your next paycheck -- you can pay it off or pay it down, but the first $91 goes toward the loan's fees. You have the option of just paying $91 to "renew" the loan as often as you want.
Elkins declined to discuss White's bill with us. After all, there's probably nothing in it for him. It's a shame, because we'd love to hear his take on White's bill. Maybe he'd surprise everyone by welcoming a modicum of barriers to an industry that essentially bends low-income folks over a barrel while charging them for the lube. We'll have to wait and see, though.
In the meantime, plenty of other folks are eager to talk about how they say businesses like Elkins's exploit Texans -- you know, those folks whose interests Elkins purports to represent.
The AARP issued a press release on the heels of White's bill, saying how the group was working with the Texas Catholic Conference, the Christian Life Commission, Texas Appleseed and the Center for Public Policy priorities to prevent borrowers from becoming trapped in a cycle of debt.
The group noted that payday lenders and car title loan businesses can charge limitless fees for "essentially the same loan," making it extremely difficult to pay down the original loan.
"For many borrowers, the average cost to repay a payday loan in full accounts for 36 percent of their gross monthly income, which is more than typical housing expenses," the AARP stated. "This is a debt trap that many can't escape."
While the AARP takes a special interest in the industry because of the age of many of the consumers, there's another target demographic that appears to be getting the shaft: members of the military.
Ordinarily, you'd think a Republican politician in Texas would be especially sensitive to the needs of active and veteran members of the armed forces. But payday loan and rent-to-own businesses simply see dollar signs when they see these folks, according to Houston attorney Reda Hicks, who was named "Army Spouse of the Year" in 2014.
"What you have is this entire category of predatory lenders who target military installations, and they make a ton of money...off of taking advantage of military families, and the Pentagon has been working on trying to close some of those loopholes," Hicks told the Houston Press. But there are a few problems: "Predatory lenders, in all their various forms, are like cockroaches -- the minute you think you've squashed one, [they] figure out a new place to run, a new place to hide."
And, she adds, "There are some electeds sitting in Austin right now who have significant ownership in payday lending and rent-to-own furniture franchises, and are not particularly incentivized to try and reduce those bottom lines."
Hicks says the average enlisted soldier in his or her early twenties, married with two kids, makes about $36,000 a year. These tend to be single-income families because they move so often that it's difficult for the non-military spouse to hold down a full-time job. And with the frequent moving, they can't always afford to take all of their belongings with them.
"That's why you see these rent-to-own places...pop up around military bases," Hicks says. "They advertise heavily on military bases, trying to get people to come in and...rent-to-own their furniture. Basically, it's long-term layaway with obscene interest rates."
These businesses are good at finding loopholes. For example, the 2006 Military Lending Act caps payday loan interest rates to military borrowers at 36 percent, but, Hicks says, the Act doesn't cap interest on the fees.
It's stuff like that that made the head of the Consumer Financial Protection Bureau say the current safeguards under the ACT "are akin to sending a soldier into battle with a flak jacket but no helmet."
"Obviously, the military piece of it is near and dear to my heart, because I feel like military families have enough to deal with, and this is just really ludicrous," Hicks says. "But the simple fact is that it's not just military families that are taken advantage of by predatory lenders or by these...rent-to-own operations. It's any family with, you know, limited means and limited credit, who is just...not particularly financially savvy. I mean, if you were to just sit down and read the fine print on these contracts -- frankly, you know, I'm licensed to practice law in four states, and some of it I find really hard to read."
So what can be done?
"Any time I get a chance to talk to a military audience, I tell them: You need to be calling your electeds, and you need to be telling your stories," Hicks says. "...You may be embarrassed because you feel taken advantage of, [but] it doesn't matter -- you need to tell your stories, because our policy-makers need to understand the real-world impact of these things. And they don't know unless you tell them." (Well, Elkins probably knows.)
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But it's not just military consumers who need to get on the horn. Hicks says that the average person "needs to be just appalled" that this kind of predatory lending is prevalent in his or her state.
Hicks also says that if people want to help others avoid these kinds of lenders, they can volunteer with financial literacy organizations in their community.
"Anybody can get trained and participate in teaching it," she says. "Those kind of community resources aren't hard to find, but we need to be talking about their importance more."
Well, there you go. Sure, it sounds good, but we don't quite get why Hicks wants to protect low-income consumers, particularly military families. After all, the one thing that we've learned from successful business owners like Gary Elkins is that desperate, vulnerable people are perfect for making money off of. Why on Earth would a person want to spread awareness and financial literacy in order to give people power and control over their paycheck? It makes no sense. Sounds like Hicks and Rep. White ought to talk to Elkins. He'd set 'em straight.