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Sale-Leaseback
Lenders Defy Regulation |
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In Brief
Since the founding of the Republic, Texas has prohibited usury. Texas' constitution
bans the practice and establishes the ability of the Legislature to regulate
loan rates. The state's Credit Code clearly outlines the terms and conditions
of a legal small loan.
Finance companies may legally charge more than 90% APR interest on small loans,
including an up-front $10 fee to cover processing costs, and $4 per month per
hundred borrowed. Pawn shop loans are also expensive. But neither of these legal
short term loan options are as expensive or difficult to repay as a payday loan.
Although they walk and talk like small lenders, many payday loan companies claim
that they are not loaning money and holding checks as collateral, but providing
services. Most of them now claim to buy a consumer's property and rent it back
to them for a high fee. The real service, however, is a quick cash loan under
usurious terms.
Last year the Texas Finance Commission created a system for reasonable regulation
of short term loans at interest rates comparable to other small loan operations,
but payday lenders continue to loan money and collect fees outside the embrace
of the regulation. In order to curb usurious lending, the Texas Legislature
must clarify that the sale-leaseback company is a payday lender subject to Subchapter
F of the Finance Code and the current regulations of the Finance Commission.
Consumers
Union study
Consumers Union called 21 payday lenders in six markets to determine the current
price of these loans and the requirements for borrowers. We also reviewed their
advertising in the GreenSheet and the telephone book to determine if they used
a disclaimer common to payday lenders making loans that are not in compliance
with the regulations: "this is not a loan."
Finally we reviewed deidentified consumer complaints filed with the Office of
Consumer Credit Commissioner. Many of the complaints that were filed included
copies of "lease" agreements or other loan contract information for
the cash advance companies. Consumers Union reviewed these lease agreements
and the terms and conditions of the loans. While these complaints, essentially
anecdotal in nature, do not provide a statistical information about the industry
as a whole, they show in rich detail exactly what can happen to real consumers
who use sale-leaseback or other payday lenders who are acting outside the current
law.
