Last spring, Federal Cash Advance of Oklahoma, LLC raised nearly $1 million in a single transaction. That money came from the federal Paycheck Protection Program (PPP), which provides forgivable loans to small businesses to ease the financial turmoil caused by the COVID-19 pandemic. The company, which does business as CashMax, operates dozens of green and yellow storefronts across Texas. It promises a ‘fast’, ‘friendly’ and ‘hassle-free’ way to get money, through payday loans and car titles, as well as cash advances.
But loans sometimes come with a catch. An anonymous borrower deposited a complaint about CashMax at the Federal Consumer Financial Protection Bureau in October. They said a woman who worked for CashMax and another online payday loan company “harassed me at work on my cell phone.” According to the complaint, the CashMax representative said the borrower owed the two companies $1,500; she threatened to sue the plaintiff. The representative even asked to speak to the borrower’s employer to find him and serve him at work. Under federal lawdebt collectors can usually only call someone’s boss to ask for their contact information, not to report an employee’s debt.
A representative for CashMax said it “denies everything” in the complaint, but declined to elaborate. “In the spirit of compromise, we have resolved all of the complainant’s issues with a confidentiality agreement,” he said.
As borrowers in Texas filed complaints with the Consumer Financial Protection Bureau, those same lenders were cashing in federal COVID-19 relief money. CashMax is one of 15 payday lenders and car titles operating in Texas that together have racked up more than $45 million in federal pandemic aid, according to analysis by Ann Baddour, director of Fair Financial. Project Services at Texas Appleseed. Its report on the subject was published on Tuesday.
When people find themselves in dire financial straits, they can turn to payday lenders and car titles for quick cash. These lenders offer small, short-term loans with high annual interest rates which can be over 500% in Texas— among the highest in the country. Rates are especially high here because the state does not cap the fees these lenders can charge. Widely maligned for their predatory practices, including high-pressure and deceptive sales tactics that force consumers to pay more than advertised, these lenders typically target low-income people and Noir and Brown buyers.
Although advertised as aid for emergency expenses, payday loans are notusually one-time expenses. Borrowers often use them to pay for basic expenses like groceries and rent. In Texas, borrowers pay a medium $70 fee to borrow $300 — if they repay in two weeks. Car title loans also guarantee quick cash, from a few hundred to a few thousand dollars, with equally high interest rates. But, these loans require borrowers to hand over the title of their vehicle. If the borrower does not repay his loan, he loses his car. Additionally, lenders benefit from additional cash flow through loan rollover. The vast majority of borrowers cannot repay their loans and fees within the allotted two weeks, so they have to pay additional fees, between $60 and $1,200— to renew their loans.
“These loan products have been well documented to create a cycle of debt…and disproportionately impact all communities impacted by the COVID crisis,” Baddour says. “Yet here we allow [these companies] to access taxpayer-subsidized loans – essentially free money.
Payday and car title lenders in Texas racked up average PPP loans of $1.36 million, while small businesses in the state received less than half that amount on average, the analysis found. de Baddour, which focused on loans over $150,000. This amount of $45 million granted to these lenders is probably an underestimate; Baddour compiled data from state licensing records, but she says not all payday lenders and car titles need a state license, thanks to a 2019 Texas attorney general. decision.
The U.S. Small Business Administration (SBA) initially rejected a major payday lender from the PPP program because it said giving them relief was not in the “public interest.” But the SBA ultimately reversed course after two major payday lenders put pressure legislators and a bipartisan group of legislatorspleaded with the Treasury Department to offer them a cut. Nationally, collection agents and payday lenders earned more than $500 million in PPP loans.
Another lender with ties to Texas received a large payment, even though the company has numerous complaints against it. These harms are documented in hundreds of complaints filed with the Consumer Financial Protection Bureau. New York-based MoneyLion Inc., which is licensed in Texas, has received $3.2 million in PPP loans and received more than 600 complaints since 2018. A Texan complained of constant withdrawals from her bank account, even though she was unemployed.Another one said he tried to repay his loan in full, but the payment was never processed and the company did not return his calls. “Moneylion engages in predatory and abusive lending practices by flagging the current loan as DEFAULT or past due on customers’ credit,” another one wrote. “This is egregious and terrible in the midst of a global pandemic.”
The feds have given $700,000 in PPP loans to Power Finance Texas, which is owned by former state Rep. Gary Elkins, a Republican from Houston who fought payday lender regulation in the Texas House . In 2014, Dallas and San Antonio filed criminal chargesagainst Elkins tow companies, including three Power Finance locations, for failing to register with cities or let inspectors into his store.
More than 45 cities in Texas have passed local ordinances to curb abuse by payday lenders and auto titles. But, in the last of them legislative sessions, both Republican and Democratic lawmakers have proposed bills to overturn these regulations. Payday lenders gave Texas politicians millions of campaign contributions during the last years. This year, Baddour says, is bound to be similar. But this time, they’ll be heading to the state capitol with a wad of taxpayer money in their pockets.
This article has been originally published by the Texas Observera non-profit investigative journal.
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