Payday Lenders Have Found a Big Loophole in State and Local Regulation

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A few weeks ago, the Texas Observer's Forrest Wilder went on a journalistic mission to a Cash Store outlet near his home in Austin. His aim, as he describes it, was to see what it was like to take out a payday loan in Texas, particularly in the wake of stronger regulations that Austin recently put in place.

Within 45 minutes, I had $1,500 in twenties counted out to me, arranged like a fan on the counter. The first payment of $408.72 was due in two weeks. I left the store with the money, but I was also confused. I had gone in looking to take out a payday loan but had left with something else.

"We don't do a payday loan," the Cash Store employee told me when I asked for one. "It's an installment loan." Indeed, small taped-up signs in the store stated that the Cash Store doesn't offer "deferred presentment transactions"--the technical term for payday loans--at its Austin locations. Moreover, the employee told me that they were "pretty good about loaning up to half of what you make in a month."

What Wilder found was that the Cash Store was skirting -- fairly blatantly but in an entirely legal manner -- the rules Austin and the state have put in place, ostensibly to crack down on payday lending. Austin's rules limit payday loans to 20 percent of one's monthly income; Wilder was offered twice what he makes in a month. They also cap the number of installments at four; Wilder was allowed 10. Wilder was also not provided with a state-mandated disclosure form.

The way the Cash Store was able to get around these rules was by having Wilder sign a photocopy of a blank check, rather than an actual postdated check. That meant that, rather than being a "credit access business," which falls under state and local regulations governing payday and title lenders, the Cash Store is a "credit service organization," which does not.

Chances are, this type of workaround isn't confined to Austin. That city's rules are more or less identical to those put in place by Dallas last year, and payday lenders here have already proven they're willing and able to skirt the rules. That's not to mention that the Cash Store Wilder visited is part of a chain that controls scores of outlets across the state, including five in Dallas.

Plugging the loophole will require a legislative fix, which State Sen. John Carona of Dallas, who chairs the Senate's Business and Commerce Committee, told Wilder he would try to do in the coming legislative session.

That won't be easy. Wilder says he picked the Cash Store at random, though one suspects his choice might have something to do with the fact that its owner, Irving businessman Trevor Ahlberg, is a prolific political donor who has contributed more than $1 million to candidates since 2004. And the fact that Ahlberg is an avid big game hunter who poses for photos in safari gear by dead elephants.

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