It's illegal for payday lenders to pursue criminal charges against borrowers who can't repay their loans, debtor's prison being out of fashion nowadays. Under rules passed by the Texas Legislature in 2011, they can't even threaten to file criminal charges. And yet, according to a report released last week by the nonprofit watchdog Texas Appleseed, payday lenders are routinely using the criminal justice system to help collect their debts.
In a review of two years of cases from two dozen jurisdictions across the state, Texas Appleseed documented more than 1,500 criminal complaints filed by payday lenders for bad checks. These bad checks are presumably the ones borrowers present to secure their loan, says Ann Baddour, who wrote the Texas Appleseed report. That's how these transactions work: A desperate cashless person gives the loan store a post-dated check for principal plus exorbitant fees, then walks out of the store with a pocketful of cash. At the end of the loan period, the store cashes the check.
Baddour says post-dated checks are treated as loans under Texas law. If they bounce, it's a civil, not criminal, matter unless there is some underlying fraud, which is all but impossible in payday loans since the "premise of the transaction is that on the date that a consumer comes in and give them a check ...you know they don't have the money
Jail time in these cases is relatively rare, but even absent an arrest, the threat of criminal prosecution, often backed up by a stern letter from the district attorney's office, can be a powerful and rather terrifying incentive to pay up.
Businesses in Collin County are the state's most prolific, filing 740 complaints, a rate of more than one per day. The vast majority of those came from a single lender, PLS Loan Store in Plano.
Assistant Collin County District Attorney Debbie Harrison wrote in a letter to Texas Appleseed earlier this year that none of the cases have been criminally prosecuted.
"No informations have been filed or indictments returned on any of these cases," she wrote. "We only collect the amount of the check and the statutory fees on these cases."
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That's better then forcing the debtors into indentured servitude, but acting as an enforcer for payday lenders seems an odd role for a prosecutor. In two years, her office collected $131,000 from 204 borrowers.
Reached at her office this morning, Harrison said she merely handled Texas Appleseed's open records request and doesn't know Collin County's procedures for handling bad check claims from payday lending. The head of the hot check division, she said, is out for the holidays.
Baddour says Texas Appleseed has filed various complaints about the practice with the Office of the Consumer Credit Commissioner, which regulates "credit access businesses" like payday and auto-title lenders. But even if regulators punish lenders for filing criminal complaints, she worries the penalties will be too weak to dissuade the practice. She thinks the Legislature needs to change the criminal code to explicitly exempt payday loans from criminal prosecution so that district attorneys will stop accepting the cases.
Send your story tips to the author, Eric Nicholson.