An unexpected medical bill, car trouble, buying school supplies, a funeral or a summer utility bill—one or many of these expenses have pushed countless Texans to the financial brink. Needing a way to meet the unexpected expense, many families turn to payday and auto title lenders who are all too happy to profit off of people's misfortune.
Usually payday and auto-title borrowers are already financially fragile and rather than being a lifesaver these loans become an anchor. Payday loans are unsecured short-term loans that simply require a job and access to a bank account. Payday lenders are not required to determine the borrower's ability to repay the loan and meet their other financial obligations in the way a commercial bank does when it assesses mortgage lending.
The initial term on a payday loan is typically two weeks, with the full amount due by the next pay period. An auto title loan is secured by the title of a vehicle and the loan term is usually 30 days.
Most borrowers cannot pay loans back by the end of the initial term. Data shows 57 percent of borrowers rollover their initial loan and the average borrower rolls over a loan four times before they pay off their debt. When combined with interest and fees the annual percentage rates (APR) can reach over 500 percent.
For example, a single mother borrows $300 to make repairs to her car. At the end of the initial two-week term she owes $368. If she cannot pay this amount, she pays $68 (interest and fees) to rollover the loan another two weeks and she still owes $368. In our example if our single mother rolls her loan over four times, her $300 loan will actually cost her $643.
The payday and auto title lending industry, as it currently operates in Texas, preys on the poor and the vulnerable. Families trapped in these loans are working people attempting to provide for their families, and these loans are pushing them over the financial cliff.
When they cannot pay their utility bills or rent because their payday fees are automatically debited from their accounts, they come to our churches and local charities for financial assistance. Valuable church resources that could be used to build the kingdom are instead going to subsidize the payday and auto title loan industry. In 2012-2013, churches and nonprofits helping borrowers, along with Texas families, collectively paid auto title and payday loan businesses $2.7 billion in fees.
The Bible contains a clear prohibition on usury and instruction on how we are to treat the poor (Exodus 22:25, 1 John 3:17-18, Luke 6:34-35). The CLC has been working the last three sessions to reform the payday and auto title lending industry. While 22 cities have passed local ordinances, which provide consumer basic protections, the CLC is working to pass statewide reform. We believe every Texan should be protected from these usurious business practices.
The CLC encourages churches to offer financial literacy classes to members and the community, but the state must also do its part to prevent an industry from making its profits on the backs of the poor. The proper role of government is to provide a safe and just environment so that all of its citizens have the opportunity to thrive (Romans 13).
The payday and auto title loan industry preys on the poor and is wreaking havoc on family financial stability in Texas. With your help, we can advocate for the Legislature to pass meaningful statewide reforms that end this cycle of financial exploitation of the financially fragile and poor in our state.
- HB 411: Limit payday and auto title lenders ability to make the abusive and threatening collection calls
- HB 1020/SB 121: Limit the amount of a loan to a certain percentage of the borrower's monthly income and cap the number of times a borrower could refinance a loan.
- SB 92: Takes the language from the city ordinances passed by 22 cities and applies it apply statewide.
- Spent: A short documentary about Americans without financial options that lead them to payday loans. Watch here...
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