The payday lending industry in Texas has managed to wrap its tentacles around just about every level of government there is, repeatedly killing any move toward meaningful regulation on the part of the state Legislature, skirting rules set up by municipalities, Dallas included, aimed at curbing its worst abuses, and, now, getting county prosecutors -- the people Texans elect to lock up thieves and murderers and rapists and such -- to carry water debt-collection notices for it.
The practice was uncovered over the summer by the Texas Observer's Forrest Wilder, who has established himself as the bard of payday lending coverage in the state.
Here's how Wilder explains the situation.
An Observer investigation has found at least 1,700 instances in which payday loan companies in Texas have filed criminal complaints against customers in San Antonio, Houston and Amarillo. In at least a few cases, people have ended up in jail because they owed money to a payday loan company. Even when customers avoided jail, the Observer has found, payday loan companies have used Texas courts and prosecutors as de facto collection agencies.This is despite state laws that forbid payday loan companies from even threatening to pursue criminal charges against their customers, except in unusual circumstances. The law specifically prohibits theft charges when a post-dated check is involved. (Most payday loans require borrowers to provide a post-dated check or debit authorization to get the money.) The state Office of Consumer Credit Commissioner has advised the payday loan industry that "criminal charges may be pursued only in very limited situations" where it can be proven that a borrower knew a check would bounce.
See also: John Carona's Payday Lending Reform Crashed into a Wall of Lobbyists Today
Bad debts are supposed to be handled through civil processes, debt collection agencies or lawsuits. It's the American way. Yet at least some payday lenders -- Wilder singles out The Money Center in San Antonio, and Cash Biz near Houston -- have managed to persuade district attorneys' offices to take their cases.
The question is why. The answer, as always, is money. As Grits for Breakfast explains, if prosecutors treat unpaid payday loans as hot checks, their office gets to keep the cash that's collected.
Like asset forfeiture, hot check collection produces a slush fund that elected prosecutors can use however they want. According to a TDCAA primer on the subject from 2008, "The statute gives the elected prosecutor sole discretion over expenditures from the hot check fund; the elected is not required to get approval from the commissioners court to use the funds." So there's a tacit economic incentive for prosecutors to look the other way when payday lenders attempt to use them for purposes of debt collection. It helps them grow their slush fund.Over time, prosecutors have successfully lobbied to use hot-check funds for just about anything (except supplementing the pay of elected prosecutors themselves). "Originally, the Legislature envisioned the money would be used to defray the costs directly attributable to the prosecution of hot check writers, but the spending guidelines have expanded over the years," according to the TDCAA primer. Further, TDCAA emphasizes that, "if a defendant has written several hot checks, there is nothing to prohibit you from collecting a fee on each check." So in aggregate, hot check fees can rack up pretty quickly.
See also: Regulators Warn Payday Lenders to Stop Blatantly Exploiting Loopholes or Risk Losing Them
The Texas District & County Attorneys Association has warned its members against doing the bidding of payday lenders. From the other side of things, the Office of Consumer Credit Commissioner issued an advisory making clear that payday lenders "should not use a district attorney's hot-check division simply as a means for collecting on delinquent loans."
Maybe they'll heed the advice, but both parties have a built-in financial incentive not to. Maybe the Legislature will have found some backbone come 2015.
