High-interest loans are legal in Texas from certain lenders
Proponents say Texas has some of the weakest laws to protect consumers from what they call predatory lending.
HOUSTON â Even in a good week, Lexi, 28, struggled to make ends meet.
The single mother with a college degree is employed as a computer coding teacher in an after-school learning center. But inflation, soaring food prices, and unexpected car repair bills meant she couldn’t pay her rent recently.
She was days away from being kicked out of her apartment with her three young daughters.
“I was desperate. i needed money I didn’t want to get kicked out and I didn’t know what I was doing,” Lexi said.
she asked KHOU 11 news not to use their last name.
Her desperation led to a Google search for “quick loans,” and soon Lexi received three offers to lend her money. Admittedly naive about finances, she didn’t read the fine print on the terms and conditions – CreditNinja had an interest rate of 447%, 680% from Speedy Cash and a whopping 767% APR from the company NextLoan.
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“Outrage, shock,” said Lexi’s boss at the after-school computer learning center Ellecia Knolle.
Knolle said most of her employee’s paycheck was quickly gobbled up by the three lenders. The $2,600 loans Lexi took out would cost $13,067 to pay back over the course of two years.
“It’s just not right,” said Knolle. “This activity preys on the poor.”
Consumer advocates observe an increase in short-term loans in difficult economic times. They’re advertised as payday loans, car title loans, and cash advance or installment loans, but regardless of the name, proponents warn the danger is the same — a financial crater that many consumers can’t extricate themselves from.
So how can the exorbitant interest rates be legal?
“That’s a question I get asked all the time,” director of the Fair Financial Services Project at Texas apple seedsa partner with the Texas Fair Lending Alliancesaid Ann Baddour. “People think, ‘Don’t we have rate caps? Don’t we have usury laws?’ But these companies kind of seeped 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 that anything above that is considered abusive. But she said payday lenders aren’t actually lenders, but rather brokers or “loan access firms” who arrange the loans. While Texas law requires CABs to be licensed under the state’s Credit Services Organization Act, there is no cap on the fees they can charge.
“It has a regulatory veneer,” Baddour said. “And because Texas has extremely lax laws, nothing they do here is against the law.”
Elsewhere, the exorbitant interest rates are forbidden. Sixteen other states and Washington DC have banned expensive, short-term loans. Many cap interest rates, including fees, at 36%.
Speedy Cash and NextLoan have not responded to requests for comment. A spokesman for CreditNinja said the company is providing 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 offers repayment assistance for customers who run into trouble.
“Thousands of our customers have reviewed our credit products on TrustPilot, and we are proud to have received a rating of , which reflects our commitment to excellent customer service,” said a CreditNinja spokesperson.
The company is a member of Alliance of Online Lenderswhich states that credit access firms help find risk-rated small-dollar loans for people who would otherwise be turned away by banks, credit unions and other traditional lenders because of their credit history.
“Online lenders are required by law to clearly disclose the terms, charges and terms of each and every loan to enable borrowers to make an informed financial decision,” said Andrew Duke, executive director of the Online Lenders Alliance.
While other states have banned exorbitant interest rates and fees, efforts to curb high-priced lending practices have repeatedly failed in Texas lawmakers.
For borrowers like Lexi, it means having to protect yourself.
“I didn’t read the terms and conditions and then it went boom,” Lexi said. “I just realized I just dug myself into a hole I can’t get out of.”
United Way of Greater Houston provides financial advice and support to low-income earners through United Way THRIVE, a collaboration of nonprofit partners, community colleges and financial institutions.
“We help families on their journey to financial stability by increasing income, building savings and building wealth,” said Aaron Sturgeon, Senior Manager of Financial Sturgeon. “If anyone is interested in connecting with THRIVE, just call 211.”