February, 1999

Wolf in Sheep's Clothing:
Payday Loans Disguise Illegal Lending

This article was written by the Consumers Union Southwest Regional Office.

In Brief CU Study Findings Old Dog, New Tricks The Criminal Justics System as a Collection Agency The Treadmill Table of Study Results Recommendations

Recommendations Enforce existing Texas usury laws Despite the fact that some lenders attempt to hide the nature of their transactions, Texas usury laws prohibit the excessive interest rates charged in these transactions. The problem of high cost "payday" loans has mushroomed in Texas in the last year. The Office of the Attorney General and the Office of the Consumer Credit Commissioner must step up enforcement against companies making these kinds of loans. Usury is already illegal in Texas, but without enforcement these practices will proliferate.   Make it illegal to use or threaten hot check collection for payday loans Payday loan lenders use the state's criminal justice system as a collection agency when borrowers cannot repay these high cost loans. Lenders take a personal check from a borrower as collateral on the loans. The mere threat that a lender will pursue criminal hot check collection is enough to make borrowers find some way to repay or renew loans. The Legislature should make it illegal for lenders to pursue or threaten to pursue hot check collection against borrowers on these kinds of loans.

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