State Punishes Payday Lender for Criminalizing Debt
A year and a half after the Observer documented hundreds of examples of payday loan companies using the criminal justice system to pursue unpaid loans, state regulators have taken action against one company. In December, the Office of Consumer Credit Commissioner ordered Ohio-based Cash Biz to pay a $10,000 fine and provide more than $16,000 restitution to 51 customers the company filed criminal complaints against. In a legal filing obtained by the Observer, Cash Biz, which has 16 Texas locations, agreed that it had “referred its customers for prosecution based on an erroneous belief that a person commits a crime by issuing a check that is later dishonored.”
State law prohibits payday and title loan businesses from even threatening borrowers with criminal action, except in unusual circumstances. And the Texas Constitution states plainly that “no person shall ever be imprisoned for debt.” Nonetheless, many local DAs and justices of the peace serve as de facto debt collectors for the industry, and some people with small payday debts have ended up in jail. Payday and title lenders in Texas can effectively charge unlimited fees for loans, which often carry APRs of 500 percent or more. In December, Texas Appleseed released a report documenting more than 1,500 criminal complaints filed by 13 different payday loan companies since 2012. Many resulted in fines, arrest warrants and even jail time.
Eamon Briggs, assistant general counsel with the Office of Consumer Credit Commissioner, said this was the first time the agency had penalized a company for the practice.
“This certainly appears to be a growing trend and we’re working to make sure our licensees know they can’t be making these referrals unless they have specific concrete evidence of fraud, forgery or other criminal conduct,” Briggs said. “It’s simply not permissible or within the intent of this prohibition to allow [payday and title lenders] to make referrals and simply rely on the DA to decide whether or not there are merits to the claim. We’re working to make sure everyone knows that this is not an acceptable practice.”
Briggs said OCCC asks lenders during an examination process whether they rely on the criminal justice system to collect on bad debt. But “people don’t always answer that question during the examination process truthfully.” The agency relies largely on consumer complaints and information supplied by consumer advocacy groups like Texas Appleseed to catch violations.
Ann Baddour, of Texas Appleseed, said she was pleased that OCCC had taken action against Cash Biz but said the punishment fell short.
“It’s not sufficient because it doesn’t address any of the detrimental impacts it had on these individuals,” she said. “It doesn’t expunge that charge from their record” or fix damaged credit scores. “It’s basically a refund at value, there’s no additional penalty.” It also doesn’t consider how much Cash Biz might have gained financially from threatening customers who made payments directly to the company but not a DA’s office.
“It does seem like me that it’s not a sufficient penalty to create a disincentive for this behavior,” Baddour said.
OCCC says it’s looking into 13 other payday companies documented by Texas Appleseed as filing criminal complaints against customers. But despite the attention by regulators—not to mention the fact that the practice is illegal—it continues.
The agency and consumer advocates want the Legislature to clarify, again, that criminalizing payday debt is not allowed. Several bills would do that but only one—Senate Bill 1650 by Sen. Kevin Eltife (R-Tyler), considered the weakest—has even gotten a hearing. House Bill 3058, by Rep. Helen Giddings (D-Dallas), would put the prohibition in the Penal Code and allow both consumers and the Texas attorney general to sue a wayward lender.
Giddings says her measure is needed to “protect citizens that are being taken advantage of by these predatory lenders.”
But even something that simple, and relatively uncontroversial, is difficult to move through the Legislature. The Giddings bill is not among a handful of consumer loan bills being heard by the House Investments & Financial Services Committee on Wednesday. Lawmakers seem loath to touch anything that has to do with payday lending after back-to-back sessions that featured nasty, and ultimately unsuccessful, efforts to bring any regulation to the $5 billion industry.
“There’s not a desire to pass any meaningful payday bills” this session, said Baddour.