During the 82nd state legislative session, The Anti-Poverty Coalition of Greater Dallas, joined its allies from across the state, including Texas Catholic Charities, the Christian Life Commission, 500% Interest is Wrong (now the Texas Fair Lending Alliance), among others, to seek relief legislative relief for economically vulnerable Texas citizens victimized by the exploitative practices of short term lenders. The results of our efforts were HB 2592 (82R) and HB 2594 (82R). These two pieces of compromise legislation were designed to provide greater consumer awareness; through greater disclosure by industry participants and monitoring by the state, we hoped these two bills could help customers make more fully informed decisions before patronizing these businesses.
In the spring of 2012, the Anti-Poverty Coalition, working with Texas Appleseed, conducted ‘secret shopper ‘surveys to determine the industry’s compliance with both state law and local ordinances. The results of these findings would help us determine both the effectiveness of the new regulations, as well as what further efforts should be undertaken should significant non-compliance be discovered.
The survey revealed major compliance issues. The Anti-Poverty Coalition surveyed 37 of the 241 short-term lenders in our city. The average charges for payday and auto-title loans among the 37 range from 24 to 66 times the Texas constitutional usury cap of 10 percent interest.
Only 46% of the surveyed locations posted fees in a manner prescribed by state law. Only 41% of the locations posted the Office of Consumer Credit Commissioner contact information and offered the legally proscribed loan disclosure upon request.
According to survey results, the required “warning notice” to consumers about the potential to incur additional charges was posted at only 22% of the 37 surveyed store locations; 46% of the store locations did not show volunteers their CSO registration document upon request. One volunteer commented, "They said they were registered [as a CSO], but would not show me any forms until I brought back all my information."
In addition to noncompliance with the posting and disclosure standards, some locations provided misleading information. In the fee posting, one business listed the loan interest rate as 13.99%, 11.99%, and 10.99% for a 30-day auto title loan. The business listed the monthly interest rate charged for an auto title loan instead of the annual percentage rate, as required by law. These monthly rates are the equivalent of 181.95% APR, 157.02% APR, and 144.76% APR respectively. In addition to misrepresenting the interest cost, the fee disclosures were printed in small type, less than 12 point. Some tellers made similar misrepresentations about the cost of the loans, as one volunteer wrote, “[the teller] showed an actual contract to me, but said the interest rate of 402% wasn't important. The interest due every two weeks was 15%.”
We find these and other deficiencies resulting from our survey’s to be disturbing. We believe that this committee should find them equally disturbing. This represents an industry determined to avoid any evidence of even a good faith effort to comply with state law, at best; it represents a callous disregard for the economic health and wellbeing of the consumers for whom they purport to be a ‘much needed service’.
In fact regarding the Dallas local ordinance (identical to Austin) which seeks to even further protect Texans in our city, auto title lenders are evading regulations limiting the amount of loans to 3 percent of a customers’ total income or 70 percent of the value of the vehicle. They are doing so by transferring existing loans outside of the city of Dallas where such ordinances are not on the books.
Our survey also reveals an apparent inability if not unwillingness, to self-govern. In Dallas they CSAT members are failing to conform to their publicized industry ‘best practices’. Of the 37 stores in question, 70 percent fail to post the CSAT seal; 65 percent post no notice of best practices and almost 80 percent fail to make available the consumer financial literacy materials touted by their industry.
Any evaluation of the effectiveness of HB 2592 (82R) and HB 2594 (82R) must take these culture of determined, systemic non-compliance into account. It is evidence that both enforcement, but stronger legislative remedy is in order, as well as consequences for non-compliance. The cycle of debt into which our most vulnerable citizens are steered must be addressed. This is not anti-business. Indeed stronger regulation and enforcement sends the signal that Texas expects all lending agencies, to operate with the integrity that can only come from transparency.
The people represented by the Anti-Poverty Coalition our allies don’t have lobbyists and lawyers to defend their interests. They only have our organizations and the elected and appointed public servants to take up their cause. We ask that you take this into account in your deliberations.