Payday lenders pull out locally as new restrictions put pressure on industry

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Two years ago, on a 2½-mile stretch of Westheimer between Gessner and Voss, strip malls lining the roadway had no less than 11 storefronts selling payday loans and auto titles. Anyone in need of quick cash – and willing to pay exorbitant interest rates – could choose from Cash America, Loan Star Title Loans, TitleMax, EZ Money Loan Services, Ace Cash Express, two First Cash Advance outlets and several independent operators.

Today, only two of those storefronts remain to offer short-term, high-interest loans to people who have no other recourse: major national chains Ace Cash Express and Advance America.

The pattern on Westheimer repeated itself on Houston’s commercial thoroughfares after a local law went into effect in July 2014 to restrict the activities of small lenders who can otherwise charge up to 500% interest. Since then, the number of licensed payday loan and securities firms in Houston proper has plunged 40%, from 310 to 187, while deals in the metro area have fallen 27%.

It looks like a dramatic turnaround for a city that once seemed to have a payday lender on every corner, but the effect on the working poor who use these services remains unclear. City officials admit they don’t know whether customers are finding better, lower-cost alternatives or simply driving beyond city limits, using online payday lenders or turning to unlicensed companies or loan sharks.

One thing remains certain: the reasons people who live paycheck to paycheck turn to these lenders, and the high rates they charge, are largely unchanged.

Betty Walter recently left Ace Cash Express near Hobby Airport with a $600 loan to fix her car, her only way to work. After all fees and interest, she will end up paying back about $1,400. But she desperately needed to keep her job at a veterinary practice and had nowhere to find the money.

“If you’re desperate, just pay,” Walter said. “I would probably pay more.”

A statewide push

Payday and auto title loans are a form of cash advance available to people who may not have access to other forms of credit. Due to high fees and high interest rates, customers very often cannot afford to make payments, and so end up refinancing ever-increasing balances over and over again – what regulators call a credit cycle. indebtedness almost impossible to break.

Houston was far from alone in enacting restrictions on small dollar loans. While efforts to pass state legislation have been blocked by industry lobbying, a coalition of church groups and community activists have worked for half a decade to persuade local jurisdictions to pass laws. orders to curb the lending practices that most often trap people in cycles of debt. Thirty-five communities in Texas have passed local laws that generally require lenders to ensure borrowers have some ability to repay loans and limit the number of installments, allowing lenders to earn more interest and charge more fees.

Since this surge began, the industry’s footprint has shrunk considerably. In a report released in June, Texas Appleseed, an Austin-based nonprofit, found that the number of storefronts in Texas dropped 25% between 2012 and 2015.

“The orders have been very effective in their purpose, which is to shut down access to credit businesses,” says Michael Brown, who runs a Corpus Christi-based consultancy for small lenders.

However, the overall loan volume has not declined as much as the number of storefronts – only 9% in Texas between 2012 and 2015. Business website. , which local jurisdictions are unable to regulate.

Archie Gall runs Star of Texas Financial Solutions, a payday lender with operations in Waco, Killeen, Austin and Temple, all of which have passed ordinances restricting payday loans in recent years. He said he was pretty sure many of his clients needed more money than they could afford to repay in the reduced number of installments allowed by law.

As a result, they take out multiple small loans from different lenders using the same pay stubs. Then they default, at the rate of about one in five loans, which he says is higher than in the past.

“They need that money now, so they’re going to say what they have to say to get that money,” Gall said.

Gall estimated that his business was down about 20% because he couldn’t lend as much money to low-income customers. He did not close any stores but cut a few jobs.

He also recently launched an online business, which puts him beyond the reach of local regulations.

“You almost have to wonder,” he said, “why am I still going to open stores and employ people?”

Sup easy to get a loan

So what exactly is happening in Houston under the numbers? Let’s start with where payday lenders are moving – or not moving.

Back when the city ordinance was passed, critics suggested that permit holders would jump just outside city lines to avoid the new law. This does not appear to have happened: an analysis of licenses shows no significant movement between jurisdictions.

The payday lender closings, meanwhile, have spread across the city, but have particularly hit commercial corridors in places like Spring Branch East, Alief, the Northside, Gulfton and a cluster near George Bush Park. A handful of new locations have opened, but none inside the 610 loop.

The number of independent operators and smaller chains – of which there weren’t that many in the first place – fell to near zero. A company called KJC Auto Title Loan, which had eight outlets in the city, has since gone bankrupt. Texas EZ Money, which previously had 45 licenses in Houston, dropped them all when its parent company, EZ Corp. of Austin, left the company entirely on pay in July 2015.

PLS Loan Store has waived its 12 loan licenses, although it still retains multiple locations across the city, offering a suite of financial services like insurance and prepaid debit cards. TitleMax, a title lending company, went from 40 licenses to 31. Payday lender Advance America went from 31 licenses to 20. A few smaller chains, including Loanstar, Speedy Cash and Cash Store, remained roughly of the same size.

All except Speedy Cash declined to comment or did not respond to requests for comment. Ace Cash Express reported to Rob Norcross, whose public relations firm represents an industry lobby group called the Consumer Service Alliance of Texas. He pointed out that as a result of the ordinances passed in cities across Texas, loan fees have risen as defaults have increased and profits have fallen.

“Ironically,” Norcross said in an email, “the ordinance passed by more than 30 cities in Texas to ‘protect’ consumers has raised prices.”

It’s true that average fees per transaction have increased by 6.5% in the Houston metro area since the city’s ordinance took effect, but those fees were increasing at about that rate before the inception. in force of law. The percentage of people giving out loans – thus incurring higher fees – also jumped from a low in 2014, but the oil crash, rather than regulatory changes, may be behind the numbers.

Where to turn?

So if fewer people are turning to payday lenders and newly constrained auto titles, what are they doing when they desperately need the cash? A number of things.

John Branch is a neighborhood leader in Independence Heights who has lost a handful of lenders. He said people could go to pawnshops, which are more strictly regulated by the state. He might be right: State data shows that the number of pawnshops has increased slightly in the Houston area since 2014.

Alternatively, less reputable companies may offer non-compliant loans. The city only investigates small lenders if it receives a complaint. Local regulators have received 18 since the order took effect, and two have been deemed valid. The plaintiffs, however, decided not to sue them.

A few cheaper alternatives have also appeared in recent years. An installment lender called Oportun operates kiosks in Hispanic supermarkets, growing from 10 outlets in 2014 to 16 outlets today. It charges an annual percentage rate of between 30 and 40%. A nonprofit lending center operated by the Neighborhood Recovery Community Development Corp. provides small loans to workers from participating employers, which facilitate payments through payroll deductions. This allows the lending center to charge lower interest rates, about the same as a credit card.

For Silvia Chicas, an organizer with the advocacy group Texas Organizing Project, the city ordinance still doesn’t address the underlying issues. The crackdown on payday lenders hasn’t eliminated the reasons people end up in dire straits – low incomes, little access to mainstream credit, and personal disasters, from car breakdowns to sudden medical expenses (“Things are coming,” says an Ace Cash Express billboard in Houston, with a cartoon of a leg in a cast).

Local law also does not limit the amount of interest charged to people if they can show sufficient income, as long as the loan can be repaid in four installments or less.

“Even within the confines of the order, you can still take advantage of someone for all they’re worth,” she said. “If anything, it further strengthens (smaller lenders), because the little guy in the corner has closed, but the need is still there, so they’re still getting that business.”

Also, she added, most people are unaware of the few other options available.

“If someone came to me asking for an alternative to a payday loan,” she said, “I don’t know what I would tell them.”

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