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Sale-Leaseback
Lenders Defy Regulation |
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Overall Findings
In general, the lenders surveyed give a borrower cash and hold a signed check
in the amount of the loan plus the fee as collateral-the definition of a payday
loan.(1) Rates range from $18.40 per $100 per
two-week term, to as high as $4.64 per day (which works out to nearly $65 per
$100 per two-week term).
But these fees are significantly higher than allowed under the payday loan regulations.
Last year, the Texas Office of Consumer Credit Commissioner attempted to end
usurious lending by payday loan companies by instituting a regulation that requires
licensing for all payday lenders and caps fees. Licensed payday lenders may
charge a $10 fee up front, plus $4 per $100 per month-essentially the same rate
that "signature" loan companies may charge for loans under $480. The
rule also ensures that the $10 fee is only charged once every 30 days (not on
a renewal at day 14), and loans that roll over more than twice must be turned
into a declining balance loan with a repayment schedule.(2)
None of the companies we called offered us loans in compliance with the rule.
Instead, the companies offered cash that was "not a loan" or gift
certificates or, in one case, a straight non-compliant payday loan.
Of the 21 companies we called who provide fast cash, 14 identified themselves
as "sale-leaseback" companies. A sale-leaseback arrangement looks
just like a payday loan, except that the lender records the serial number of
two appliances. The borrower signs a paper "selling" the appliances
to the lender for the amount borrowed, but keeps the appliances for a "rental"
payment of (usually) $33 per hundred borrowed.
Whether they advertise as a sale-leaseback "alternative" or a simple
"payday" lender, most companies still offer long term loan extensions
that keep families paying the high loan (or lease) fee every two weeks. Most
companies advance the money over a 14-day or 15-day period, then required payment
of another fee or they would cash the original check. One company advances the
cash on a daily basis, for a minimum of three days or a maximum of 21 days,
charging customers a daily fee. This company will also extend the loan period
at the option of the borrower.
Regulations require lenders to turn long term extensions into declining balance
loans. But sale-leaseback "loan alternative" companies get around
the regulations by insisting that they do not make loans. Of the sale-leaseback
operations we identified, seven specify in their advertising that "this
is not a loan," and the Yellow Pages now sports a new section entitled
"Loan Alternatives." Two more sale-leaseback companies identify themselves
as "loan alternatives."
The largest chain payday lenders now make loans through national banks-banks
that take little or no loan risk but shelter the loans from the reach of state
interest rate limits. These companies can charge any amount, although other
consumer protections in the state regulation related to payday loans still apply
(like renewal limitations).
Notes:
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1 "Payday loan or deferred presentment transaction means
a transaction in which a cash advance is made in exchange for the consumer's
personal check, or in exchange for the consumer's authorization to debit the
consumer's deposit account, in the amount of the advance plus a fee and where
the parties agree that the check will not be cashed or deposited, or that the
consumer's deposit account will not be debited, until a designated future date."
Texas Administrative Code, 7TAC Sec. 605(b).
2 Texas Administrative Code, Title 7, Part I, Chapter 1, Subchapter F. Alternate
Charges for Consumer Loans, 7TAC Sec. 605.
