Proponents say Texas has some of the weakest laws to protect consumers from what they call predatory lending.
HOUSTON â Even on a good week, Lexi, 28, struggled to make ends meet.
The college-educated single mother is employed as a computer coding instructor at an after-school learning center. But inflation, soaring grocery prices and unexpected car repair bills have recently left her unable to pay rent.
She was days away from getting kicked out of her apartment with her three young daughters.
âI was desperate. I needed money. I didn’t want to be kicked out and I didn’t know what I was doing either,â Lexi said.
She asked News KHOU 11 not to use his last name.
Her desperation led to a Google search for “quick loans” and soon Lexi received three offers to lend her money. Admittedly naive when it comes to finances, she didn’t read the fine print of the terms and conditions – CreditNinja had an interest rate of 447%, it was 680% Speedy Cash and a whopping 767% APR of the NextLoan company.
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“Outrage, shock,” said Lexi’s boss at the after-school computer learning center, Ellecia Knolle.
Knolle said most of his employee’s salary was quickly eaten up by the three lenders. The $2,600 in loans Lexi had taken out would require $13,067 to be repaid over two years.
“It’s just not right,” Knolle said. “This activity preys on the poor.”
Consumer protection advocates have seen an increase in short-term lending during tough economic times. They’re advertised as payday loans, car title loans and cash advances or installment loans, but regardless of the name, advocates warn the danger is the same – a financial crater that many consumers don’t. can’t get out.
So how can exorbitant interest rates be legal?
“It’s a question I get asked all the time,” director of the Fair Financial Services Project at Texas apple seedpartner of Texas Fair Lending Alliance, said Ann Baddour. âPeople think, ‘Don’t we have price caps? Don’t we have usury laws? But these companies somehow infiltrated through a crack in the system.”
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Baddour explained that under the Texas Constitution, banks cannot charge more than 10% interest and anything over that amount is considered abusive. But she said payday lenders aren’t actually lenders, but rather brokers or “access to credit companies” who arrange the loans. While the Texas legislature requires CABs to be licensed under the state’s Credit Services Organization Act, there is no cap on the fees they can charge.
âHe has a regulation veneer,â Baddour said. “And because Texas has extremely lax laws, on the face of it, nothing they do breaks the law here.”
Elsewhere, exorbitant interest rates are prohibited. Sixteen other states and Washington DC have banned high-cost short-term loans. Many have caps on interest rates, including fees, at 36%.
Speedy Cash and NextLoan did not return requests for comment. A CreditNinja spokesperson said the company provides detailed cost estimates for its website and offers Texas customers a 10-day, no-questions-asked cancellation policy in case a borrower changes their mind. The company also said it was offering repayment assistance to struggling customers.
âThousands of our customers have reviewed our credit products on TrustPilot and we are proud to have an excellent rating, which reflects our commitment to excellent customer service,â a CreditNinja spokesperson said.
The company is a member of the Alliance of online lenderswho said access to credit companies help find risk-priced, low-value loans for people who would otherwise be turned away from banks, credit unions and other traditional lenders based on their credit history. credit.
“Online lenders are required by law to clearly disclose the terms, costs and conditions of each loan, giving borrowers the opportunity to make an informed financial decision,” said the executive director of the Alliance of Lenders in line, Andrew Duke.
While other states have banned exorbitant interest rates and fees, efforts to curb high-cost lending practices have repeatedly failed in the Texas legislature.
For borrowers like Lexi, that means having to protect themselves.
“I didn’t read the terms and conditions and then boom it happened,” Lexi said. “I just realized that I just dug myself into a hole that I don’t know how to get out of.”
United Way of Greater Houston offers financial counseling and assistance to low-income people through United Way BLOSSOM, a collaboration of community colleges and not-for-profit partner financial institutions.
“We’re helping families on the path to financial stability by increasing income, building up savings and acquiring assets,” said Senior Director of Financial Stability Aaron Sturgeon. “If anyone wants to connect to THRIVE, just call 211.”