Fleecing the poor
There is an epidemic afoot in Beaumont, and it isn’t the seasonal flu.
Beaumont families from all walks of life are seeking out fast cash from payday and title loan companies. These companies promise easy, same-day money that some establishments market as a way of helping residents build their credit.
But what sounds too good to be true often is. According to the Officer of Consumer Credit, only 27 percent of payday loan recipients statewide are able to pay them back on time. With various fees and interest rates that can exceed 1000 percent, hundreds of thousands of residents across the state of Texas are feeling the financial pain.
In Beaumont, that statistic is even worse. According to the Center for Public Policy Priorities (CPPP), about 10 percent of Beaumont and Port Arthur payday loans were paid on time, meaning almost 90 percent of short-term payday loans were rolled over at least once, compounding the interest and money owed to the lender.
The stats for car title loans aren’t much better. Almost half of consumers refinance their title loans and at least 15 vehicles are repossessed every week in Beaumont and Port Arthur, according to the CPPP.
Just ask Marshall Jones of Beaumont.
“I just needed something to pay bills,” he said after exiting Texas Car Title and Payday Loans on E. Lucas Drive in Beaumont. “I went from one bad situation into another bad situation.”
Jones said he has paid far in excess of his original $600 pay day loan after months of making recommended minimum payments of $45 every two weeks. Such minimum payments never come close to paying the interest or principle on the original loan, and cover only the fee to renew the loan — compounding the interest and fees on top of the original principle in a snowball of debt from which many never recover.
“I can’t get out from under it because I’m steady paying such a small amount...,” he said. “It’s killin’ me.”
Although a typical payday or car title loan clearly states an annual percentage rate (APR) of 400 percent, the contract contains hidden fees associated with new laws in Texas aimed at reigning in pay day and title loan companies. In reaction to the new laws, consumer advocates say payday and title loan companies have found loopholes to circumvent Texas’ recent attempts to curb such practices, allowing them to conceal from unsuspecting consumers the real consequences of making only the minimum payments.
Payday and title loan companies are banned in 12 states across the U.S. Some states limit the amount a company can loan. In Texas, there is no limit to fees or the amount a company can lend.
“I don’t like people getting taken advantage of. And it is an industry that is taking advantage of people,” said the Director of Financial Education at FivePoint Credit Union, Mandy Clayton.
Having taught financial education classes with the help of Stephanie Lundgreen of Catholic Charities of Southeast Texas, Clayton said the recent increase in payday lenders has made one thing clear: Business is booming.
“On average, a person doesn’t just have one payday loan. They have multiple,” she said. “That one payday loan, they do what’s called in their business ‘re-upping’ the loan nine times in a year. So most of the people that I’ve counseled, they have four, five maybe. It’s almost as if they’re running from one payday lender to the other. It’s a horrible cycle that they’re going through.”
But the epidemic isn’t just hitting Beaumont. It’s statewide and the Texas Legislature has taken the issue up at each session for years.
“These payday lenders, in one way they can serve a purpose, but it can also be a nightmare for a person,” said Rep. Joe Deshotel.
Beaumont’s state representative holds a grim outlook for any future reforms, saying he’s followed the industry’s power and voted for HB 2592 and 2594 which sought to limit fees and reign in payday/title loan companies. HB 2593 sought to further limit the fees and interest associated with unlimited title and pay day loan roll-overs, but the 82nd Legislature was unable to pass the bill. Soon after, the Austin City Council voted to force full disclosure of interest and other fees where the legislature’s bills couldn’t or wouldn’t.
“The only way to do it is to truly limit the interest, limit the fees,” Deshotel said. “But that industry spends a lot of money on lobbying, a lot of money keeping detrimental things from happening to the industry. It’s unbelievable.”
According to a study by Texans for Public Justice (TPJ) — a non-profit think-tank in Austin — credit usury organizations that make pay day and title loans have donated millions to Texas’ highest office-holders. Republican Speaker of the House, Joe Straus received the most, according to the study, more than $140,000 during the 82nd Legislature. Gov. Rick Perry and Lt. Gov. David Dewhurst come in a close second and third, having received some $120,000 and $100,000 respectively. Let’s not forget Texas’ top lawyer, Attorney General Greg Abbott, who received at least $50,000 from ACE Cash Express. Local Representatives Joe Deshotel and Allan Ritter were among those who garnered donations in 2011 as well, having received $3,000 and $3,500 respectively from Trevor Ahlberg-Cottonwoood Financial, owner of Irving-based Cash Store, according to TPJ.
In 2009, Perry appointed William J. White as chair of the Texas Finance Commission. White’s previous job was Vice President of Fort Worth’s unregulated pay day lender, Cash America.
“I don’t think the legislature will be able to shut the industry down. Each session we try to put in some disclosure and some limits on interest, but they find very creative ways to make money off of interest and different types of fees, which doesn’t come under the usury of interest,” he said, referring to new usury laws passed under HB2592 and HB2594 during the 82nd Legislature. “Whenever we put something up they find a way around it.”
The legislature’s newest bill, HB 2019 sponsored by Republican Tom Craddick, seeks to achieve what HB 2593 failed to — limiting the interest and fees associated with unlimited loan roll-overs which lead to undisclosed interest rates as high as 1000 percent.
Lundgreen, the director of asset building and case management (ABC) with Catholic Charities of Southeast Texas, said she has conducted in-depth analysis of more than 3,000 credit reports in the five years since starting ABC. Of those, she said the number of residents whose credit problems can be directly attributed to payday or title loans is staggering.
“A little bit more than half, at least, are dealing with payday lenders,” she said. “I think it’s more than that, but I would say that’s a very conservative estimate.”
To mitigate growing financial hardship among Beaumont’s financially troubled, some of whom are professionals with good-paying jobs, Lundgreen encouraged residents to attend ABC’s financial education classes.
Lundgreen went on to say the City Council of Beaumont could do more to curb the increase of payday lenders.
“The city needs to force the issue that there’s full disclosure of the terms because a lot of stuff gets hidden in the fine print,” she said.
Calls to the Beaumont City Council members and City Manager Kyle Hayes revealed no plans for a city ordinance regulating payday or title loan companies, however.
And the problem continues. “My daughter was graduating and I was trying to pay for her senior package,” said a woman who requested not to be identified as she exited Texas Title and Payday Loans on College Street.
The single mother of four and a senior at Lamar University claims her original loan amount of $300 has cost her more than $2,000.
According to the woman’s contract, her interest rate is 402.44 percent, but with hidden fees and compounding interest once the loan is rolled over — at least nine times, in her case — the interest rate is closer to 600 percent.
The woman said Texas Title and Payday Loans recommended she make only the minimum payment of $25 every two weeks, thereby drawing out the loan and increasing fees owed to the company.
“They always encourage that you pay just the minimum. They get you on that minimum payment,” she said. “I probably would’ve paid more, but I work construction and I’m always laid off. My employment is never steady.”
Although she said she always made at least the minimum payment, she said she did not begin paying more than the minimum payment until it was clear to her she would never pay the loan off by following the company’s minimum payment recommendations.
Stories such as this are typical. Not every consumer reads the fine print in payday/title loan contracts and don’t understand how making only the minimum payment every two weeks simply renews the loan and increases the amount of fees and interest they owe over time.
The woman said she has never taken out a title loan and doesn’t plan on ever coming back.
“When I get through with this, never again,” she said.