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Better Business Bureau Austin Texas

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					Regulation of Small Dollar
     Loans in Texas:
A Free (-for-all) Market
          Payday Loan Borrowers
Average borrowers:
38 years old, with incomes of $40,000
49% homeowner
87% have a high school education.

•   According to the industry, top reasons consumers
    use payday lenders are: location, customer service,
    convenience, speed, and confidentiality


•   At least half take out 6 loans or more per year.
          Payday Lending in Texas
•   176 payday lenders in Texas, 2484 locations. 7
    largest payday lenders have 1827 registered
    locations.
•   Average loan amounts: $300 - $500
    Average repayment period: 18 days Repayment
    periods range from 7 days to 45 days.

•   Loan fees: $15-$22 per $100
    Two-week loan APR: 390% -572%.

•   $2 billion market with over 2 million loans.
     Major Problems for Consumers

•   Loans are structured to be more profitable when
    consumers cannot repay
•   High effective interest rates
•   Fee based lending with no principal reduction
•   Term of the loans is often too short for full
    repayment
•   Loans rollovers create a cycle of debt
           Current Texas Laws
•   Texas Finance Code Ch. 342: $10 fee plus 48%
    interest, an APR of 136% on a two-week $300 loan.

•   § 342.008 ATTEMPT TO EVADE LAW. A person
    who is a party to a deferred presentment transaction
    may not evade the application of this subtitle or a
    rule adopted under this subchapter by use of any
    device, subterfuge, or pretense. Characterization of a
    required fee as a purchase of a good or service in
    connection with a deferred presentment transaction
    is a device, subterfuge, or pretense for the purposes
    of this section.

•   Credit Service Organization Act—no licensing, no
    state oversight, no limit on fees charged
    Few Texas Consumer Complaints
               Recorded
•   Since July 2004, the Office of the Consumer Credit
    Commissioner received 180 complaints and 69 were
    received through the Better Business Bureau.
          46% included problems associated with debt collection
           practices
          54% included complaints about charges or service tied to
           the loan transaction.

•   Why are there so few complaints?
          Consumers accept such loan terms as “normal”
          There are no better options
          There is limited consumer complaint infrastructure in
           Texas
     Federal Action and Approaches
           from Other States
•   36% Federal lending cap on all loans to the military and military
    families.

•   11 states and the District of Columbia have effectively prohibited
    payday lending, largely through interest rate caps.

•   Limits on rates, rollovers, number of loans, waiting period
    between loans and repayment plans.

•   Loan value limits based on income.

•   State of Michigan, state agency action closed the CSO loophole;
    in Florida, recent successful action by the Florida Office of
    Financial Regulation, against Austin-based EZCorp. could do the
    same.
      Breaking the Cycle of Debt

•   Consumers need short-term small loans

•   Consumer need affordable loan options

•   We must have fairly priced market-based
    alternatives
Contact Information

         Ann Baddour
       Texas Appleseed
    tel: 512-473-2800 x104

 abaddour@texasappleseed.net

				
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