Texas Payday Lenders Harvest Low-Interest Paycheck Protection Loans
When the pandemic hit and shelter-in-place orders were implemented, uncertainty reigned. How long would that last? How serious is this going to get? Restaurants closed. The bars were empty. The toilet paper was missing. Many have adapted to working from home or, worse, losing income.
To support the economy, Congress passed a $2 trillion CARES Act, which established the Paycheck Protection Program (PPP), a massive lending effort overseen by the Small Business Administration (SBA) intended to helping those whose incomes disappeared and, more importantly, lacked easy access to cash.
However, not everything went as planned, in terms of money for the people who needed it most. Firms with savvy accounting departments scooped up the loans, while family business owners found themselves wandering bank parking lots trying to figure out where the door was and how they had been shut out so quickly.
Texas Appleseed, a social and economic justice advocacy group, studied a thin slice of the PPP pie. “[We] began to explore the potential abuses of this funding, particularly with respect to an industry that has a history of trapping Texans in a cycle of debt – the payday loan and auto title companies,” the company said. organization in a recently published report.
Payday loans and auto title loans are theoretically meant to cover unexpected expenses and, by their name, involve borrowers repaying the loans with their next paycheck; with auto title loans, the cars serve as collateral. Interest and fees are often exorbitant, triggering a cycle of new loans and new fees for those who cannot repay quickly.
In an example provided to Texas Appleseed, a South Texas grandmother received an $1,800 loan against her car title after losing her job due to COVID-19. In the end, she repaid $5,500 for the original loan to a company that had received a $25 million loan from the Federal Reserve at 3.5% APR.
“Texas stands out among all but a handful of other states with no caps on total fees for payday loans and auto titles,” Texas Appleseed reported. “The result has been a trend of high APRs and rising fees.”
Initially, payday lenders were not allowed to tap into the PPP pool. They cried foul and sued, but ultimately dropped the suit in favor of a faster route: Congress. last April, Politics reported that 28 members of Congress have written to the SBA asking that “smaller non-banks” be allowed to apply for PPP funds. Rep. Lance Gooden, a Republican whose district includes parts of Dallas County and parts of the Southeast, provided one of the signatures. (According to FollowTheMoney.com, Gooden’s 2020 campaign received $71,300 from the payday loan and title loan industry.) Gooden did not respond to a request for comment.
Eventually, not only were the coffers opened to payday loan and auto title companies, according to Texas Appleseed, but they also received preferential treatment. “They were also among the earliest recipients of the funds,” the report said. “Thirteen out of fifteen operations secured the loans in the first month of the program’s rollout. In fact, many of those loans were granted before it was clear that the payday loan and auto title operators were qualified. .”
In addition to the fast-pass, these lenders received more money. While most small businesses received an average of $567,033 per loan, operators of payday and auto titles received an average of $1.4 million. In total, payday loan and auto title companies statewide received more than $45 million in PPP funds and continued to offer loans at interest rates of 200% to 500 % during the pandemic.
While most PPP funds were for payroll, according to the SBA, up to 39% of the loan amount could be used for “non-payroll costs” and still be forgivable. This means that 39% of the average $1.4 million could be loaned out at 200% to 500% APR and not a penny has to be repaid.
LoanStar Title Loans, the Texas subsidiary of Wellshire Financial Services LLC, received a $25 million loan at 3.15% under the Main Street Loan Program. “The loan, intended to support small and medium enterprises, has a term of five years and includes no principal payments for two years and no interest payments for one year. Yet this same company lends auto titles to Texans at over 350% APR,” Texas Appleseed reported.
Todd Frankel at The Washington Post reported that LoanStar and other Wellshire subsidiaries are “part of a multi-state securities lending empire headed by Atlanta businessman Rod Aycox”, who was also a major donor to the former President Donald Trump.
Federal Cash Advance of Oklahoma, a Texas-based company that operates as CashMax, received $944,400 in PPP. LoanMe got $4.8 million. MoneyLion Inc. raised $3.2 million.
According to data collected by the Texas Office of Consumer Credit, the average APR for an installment payday loan in 2019 was 490%; title loans averaged 418%. A total of 18% of Texas borrowers had repossessed cars (42,878) in 2019 and paid a total of $1.64 billion in costs Alone.
Cities can enact regulations on these businesses, but even that is difficult. In 2019, Texas Attorney General Ken Paxton overturned a Dallas settlement when he ruled that “signature loans” and “low-value loans” were not the same as loans on salary, allowing businesses the city had worked to regulate in-game. Last month, the Dallas City Council voted unanimously, minus absentee Mayor Eric Johnson, to include these types of lenders in the regulations, shutting down thus the escape.
United Way of Metropolitan Dallas has a long history of working with Texas Appleseed and the City of Dallas to combat predatory payday lending practices. Stephanie Mace, vice president of Strong Communities at United Way Dallas, says the pandemic has led to an increased need for all types of financial support.
She suggests anyone looking to escape the payday debt trap contact St. Vincent de Paul of Dallas and those in need of rental assistance contact United Way or dial 2-1-1.
“Additionally, employers can help by providing their employees with access to a reasonable and secure loan as a benefit to their employees – at no risk to their business. Options include CLC and TrueConnect,” Mace said.
State Representative Diego Bernal of San Antonio introduced Bill 206 to curb predatory lending at the state level.