Report: Texas payday and auto securities lenders received more than $ 45 million in federal pandemic aid

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According to a new report from consumer watch group Texas Appleseed, companies that sell short-term loans to Texans with huge fees have borrowed more than $ 45 million in federal pandemic business loans through the Paycheck Protection Program (PPP) and the Main Street Lending Program.

The programs, authorized by Congress last March as part of the CARES Act, were intended to help stabilize small businesses as the coronavirus plummeted the economy.

Payday lenders and auto title lenders have the opposite effect on borrowers, said Ann Baddour, director of the Fair Financial Services Project at Texas Appleseed. They often trap their predominantly low-income clientele in debt that can take months or years to pay off.

“The CARES law was not passed to subsidize predatory lending companies. It was adopted to help families and small businesses overcome this incredible financial crisis, ”Baddour said.

The Small Business Administration initially excluded lenders from their listing companies that were not eligible for federal pandemic commercial loans – a list that included strip clubs and other adult entertainment companies, as well as lobbyists and companies with “sales distribution plans” pyramidal ”- but these exclusions were immediately disputed in class.

“Why should taxpayers… subsidize these companies that lend at exorbitant prices and so often undermine the financial well-being of families? Baddour said.

A Payday PPP for Payday Lenders

Fifteen companies operating in Texas selling small, short-term loans with extremely high fees borrowed a combined $ 20 million under the P3 last year.

These loans are repayable if the companies comply with a few conditions, including keeping their employees on the payroll for a few months after receiving the loans. Otherwise, PPP loans carry an interest rate of 1%.

Texas payday and title loan operations PPP loans were also larger, on average, than the typical Texas small business, according to the report. And most received their loans soon after the program was approved, as many small businesses struggled to access funds, especially black and Latino-owned businesses.

“It was a pretty disturbing conclusion,” Baddour said.

There is no cap on the fees charged by companies that negotiate payday and title loans for Texas borrowers, and it is not uncommon for payday loans to carry fees above 500% of the loan. Annual percentage rate (APR). For comparison, the average interest rate on a new credit card is around 18%, according to WalletHub.

The LoanMe company has received more than $ 4.8 million in PPP loans, according to the Texas Appleseed report. If the loans to LoanMe are not fully canceled, the company will pay an interest rate of 1%.

If a borrower in Texas takes out a multiple installment payday loan of $ 600 from the LoanMe company, they will pay almost $ 1,000 in fees and interest. This means that it takes $ 1,600 to pay off a loan of $ 600, or an APR of 510%.

LoanMe, which is based in Anaheim, Calif., Did not respond to KERA’s request for comment.

The high cost of small, short-term loans from payday loan companies and title deeds increases when borrowers are unable to repay the loan on time.

According to state mandated disclosure documents, about 3 in 10 LoanMe customers fail to repay those $ 600 payday loans as expected, throwing up another round of fees and interest when the loans are refinanced.

Christophe connelly

Just over half of the customers who took out a $ 600 multi-payment auto-title loan from LoanStar pay the loan on time as scheduled. The loan includes over $ 1,000 in fees and interest. The other borrowers have renewed the loan at least once, which adds costs. A borrower who misses a payment or pays late could lose their car.

Trump-linked securities lender

The largest loan detailed in the report went to Wellshire Financial Services, which operates more than 100 LoanStar securities lending sites in Texas. A sign in the company’s store in Grand Prairie offers a “special offer”: take out a title loan to pay off another title loan.

The Georgia-based company received a $ 25 million loan under the Federal Reserve’s Main Street loan program. The Washington Post reports that the company, led by Trump donor Rod Aycox, plans to use the loan to expand its securities lending empire.

The company did not respond to KERA’s request for comment on this story.

According to LoanStar disclosure forms, a borrower will have to pay $ 1,628.82 to repay a $ 600 loan. That’s an annual rate of almost 383%.

The $ 25 million federal government loan to LoanStar’s parent company has an interest rate of 3%.

While title loans are often cheaper than payday loans, they also come with a distinctive risk: the loan is secured by a vehicle title, so if the borrower misses a payment or makes a late payment, LoanStar can. take his car or his truck.

In the first three months of 2020, more than 13,000 Texans had their vehicles repossessed after falling behind on securities lending.

A “worrying” economic model

Texas stands out for its unique approach to short-term loans. Payday lending and securities lending showcases, like LoanStar, are registered as “credit access companies” that negotiate securities loans funded by external lenders, rather than granting the loans directly. The setup allows businesses to bypass the state’s cap on interest by charging unlimited fees.

In 2019, fees paid by Texans exceeded $ 2 billion, compared to $ 1.2 billion in fees paid in 2012.

Ann Baddour of Texas Appleseed says companies’ business models are based on people struggling to make ends meet and needing money fast to avoid a potential crisis.

A report on commercial activity reports from the Texas Office of Consumer Credit Commissioner shows that both title and payday lenders saw their business volume decline at the start of the pandemic, as federal stimulus checks, emergency and rental food aid, and allowances Robust unemployment rates have acted as a cash injection that has helped stabilize many lower-income families.

As the summer ended and federal aid dried up, leaving hard-hit families with fewer resources, businesses rebounded. Third quarter The data, the latest available, showed that payday and vehicle title loans have returned to almost pre-pandemic levels.

“It’s quite worrying because we’ve seen families keep asking for unemployment,” Baddour said. “And as families become more and more desperate, to the extent that they end up resorting to these types of loans, it will only make their situation worse.”

It’s a devastating spiral of debt that state lawmakers could stop by following the lead of several states that have acted to curb predatory lending practices and cap fees and interest rates charged on loans.

The GOP-led legislature hasn’t shown much interest in doing so in previous sessions, but Baddour said she hoped the pandemic’s spotlight on financial instability could spur lawmakers to act.

Do you have any advice? Christopher Connelly is KERA’s One Crisis Away reporter, exploring life on the financial limit. Email Christopher at [email protected] You can follow Christopher on Twitter @hithisischris.

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