Payday lenders in Texas arrest borrowers


Arresting people – or threatening to do so – for unpaid debts has been illegal in Texas for years now. Yet that hasn’t stopped payday lenders from using the criminal justice system to prosecute more than 1,500 borrowers in the state.

Payday lenders regularly turn to the courts to bring criminal lawsuits when borrowers do not have the funds to repay their loans on time, according to a report from Texas Appleseed. Such charges can lead to arrest or even jail time if the courts decide to pursue a case.

“In addition to their outrageous lending rates and practices, payday loan companies illegally use the criminal justice system to coerce borrowers into repayments,” said Ann Baddour, director of the Fair Financial Services Project at Texas Appleseed.

While only a small fraction of those borrowers end up serving jail time, Appleseed said threats of criminal charges are an effective way to force debtors to repay loans, which can result in effective APRs of over 500. %. In Collin County, Texas, for example, 204 people collectively paid $ 131,836 after filing criminal complaints, according to the report.

Appleseed has analyzed more than 1,500 criminal complaints filed by more than a dozen payday lenders between 2012 and mid-2014. Still, he says these are “just the tip of the iceberg” as he has only reviewed public records from eight of the state’s 254 counties.

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In a Harris County courthouse, for example, nearly half of 107 criminal complaints resulted in the issuance of arrest warrants and six people served jail time because they did not. could not afford or did not want to pay the fines imposed by the court which was already due. This despite the fact that the state constitution states that “no one will ever be jailed for debt”.

However, payday lenders have managed to circumvent the laws by using the state’s “bad checks” and “check theft” laws and arguing that defaulting borrowers are committing fraud or theft.

Here’s how it works: Payday loan borrowers typically need to provide a post-dated check or future debit authorization from their bank account in order to secure a loan. When the loan term ends (usually after a few weeks), the borrower can pass the check or debit or defer the loan into a new one, which incurs additional finance charges.

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In cases where the borrower does not renew the loan or does not have enough money in the bank to pay off the balance, the lenders then cash that post-dated check or debit their account for the amount owed to them. When the check is bounced or the account comes back with insufficient funds, the lender files a criminal complaint invoking the bad check laws, which criminalize the purchase of goods or services with a check that consumers know is wrong. ‘it will be bounced.

In many cases, courts as well as district and county attorneys send letters to borrowers warning them that they could be arrested if they do not pay their debt immediately.

payday lender letter
Some courts and prosecutors send threat letters to borrowers demanding that they pay.

Some courts will approve these complaints even though state laws state that handing over a check to pay off a payday loan is not sufficient to pursue criminal prosecution.

Texas Legal Aid attorney Tracey Whitley was successful in having the bad check charges against one of her clients dropped last year. But she said without legal representation, many low-income borrowers could plead guilty and pay the fines and additional fees without realizing the charges should never have been filed in the first place.

“This makes it very convenient for the payday lender,” she said. “They are successfully using the criminal courts to collect their private debts.”

Appleseed argues that Texas courts and prosecutors should consistently dismiss these complaints unless there is further evidence of fraud.

Some payday lenders are even trying to get around these laws by requiring borrowers to date their checks to the original transaction date, Appleseed found.

The bad check laws are designed to penalize someone who knowingly uses an empty bank account to “buy television or groceries,” Baddour said. “It is not intended as a debt collection tool for credit.”

PLS Loan Store and Cash Zone, the two lenders responsible for the majority of complaints cited by Appleseed, did not respond to requests for comment.

Related: Payday Loan Borrowers Pay More Fee Than Original Loan

Texas Appleseed calls on state and federal regulators, including the Consumer Financial Protection Bureau, to better enforce laws prohibiting these practices.

The CFPB has not confirmed whether it is investigating the matter, but said in a statement that “consumers should not be subjected to unlawful threats when they are struggling to pay their bills, and lenders should not be subjected to illegal threats. not expect to break the law without consequences ”.

CNNMoney (New York) First published on January 8, 2015: 7:01 p.m. ET

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