Modern Day Money Changers and Closing the Loophole

By Jennifer Carr Allmon, Associate Director, Texas Catholic Conference
My commute to work is blissfully short—just enough time for one or two songs on the radio.  So when I hear a commercial, I am quick to change the station.  Yesterday as I headed out, I heard a peppy woman encouraging me to get $2,500 in fast cash today for an auto title loan.  Annoyed, I tried another station where I was urged to get quick cash now with no credit check.  When my third station offered another payday loan commercial, I was disgusted enough to simply turn off the radio altogether.
The claim of payday lenders is that they offer a solution to families who face short-term crises.  However, instead of promoting financial stability for families, these lenders actually benefit more from a family’s financial struggles.  Payday and auto title loan businesses have tripled in number in Texas since 2006, when they discovered a loophole in Texas law allowing them to charge excessive fees for loans that trap people in debt.
Payday and auto title lenders in Texas often charge upwards of 500% APR for a $300 loan. More than 75% of payday loans are taken out within 2 weeks of the previous loan in order to fill the financial gap caused by the loan itself. Because of the debt trap, in Texas an average payday borrower pays $840 for a $300 loan.  Regulatory standards are already in place for small dollar lenders, but payday and auto title loan operators take advantage of a loophole in Texas law to avoid that regulation.  They use the loophole to get around Texas laws that cap rates and fees for consumer loans by claiming that they are not lenders, but Credit Service Organizations.  Legitimate credit service organizations (CSOs) help people clean up their credit and pay off debt.  Payday and auto title loan operators advertise no credit check for fast cash.
In the teachings of our faith we have many warnings about usury and the exploitation of people.  Lending practices that take unfair advantage of one’s desperate circumstances are unjust.  Such practices risk the stability of the family. Catholic Social Teaching demands respect for the dignity of persons, preferential concern for the poor and vulnerable, and the pursuit of the common good.  The Compendium of the Social Doctrine of the Church tells us, “Usury is a scourge that is also a reality in our time and that has a stranglehold on many peoples' lives. Although the quest for equitable profit is acceptable in economic and financial activity, recourse to usury is to be morally condemned. Those whose usurious and avaricious dealings lead to the hunger and death of their brethren in the human family indirectly commit homicide, which is imputable to them. (341)
These principles, coupled with our teaching on economic justice, compel our questioning of current payday lending practices.  In the upcoming legislative session, the Texas Catholic Conference calls on the legislature to close the loophole in our state law that allows payday, auto title, and other consumer loans to operate as CSOs, and provide a level playing field by requiring that all lenders and brokers of payday, auto title, or other consumer loans be licensed and comply with the same standards and consumer protection laws of licensed lenders in the Texas Finance Code.  In the meantime, my car radio will be off.