A new report released by the Center for Public Policy Priorities on Tuesday has found that the burden of debt created by payday and auto title loans is getting even more costly.
Payday and auto title loans are primarily used when people are struggling to make basic ends meet. Lenders take advantage of this by offering loans using a paycheck or a car as collateral. In Texas, this industry is largely unregulated, allowing lenders to get away with charging exorbitant fees that leave consumers unable to pay back their loans.
CPPP's new report found that, “While the number of overall loans made in 2013 decreased by four percent, consumers actually paid $1.4 billion in fees, a 12 percent increase from 2012.”
The increase was largely due to structural changes in the types of loans offered, which gave lenders the ability to charge even higher fees than before.
Read why the debt burden of payday loans is growing and how Rick Perry has made it worse after the jump. The CPPP report found that the debt increase is largely due to the fact that more long-term loans were offered in 2013. These loans charge higher fees over a longer period of time. As CPPP explained:
While the number of overall loans made in 2013 decreased, the number of installment loans, which work essentially like mini-mortgages and tend to be costlier with longer terms, increased by 60 percent in one year, and fees on these jumbo loans doubled. For every $1 borrowed through an installment payday loan, Texas consumers paid at least $2 in fees, plus the original loan amount.
“These budget-busting loans only make the cycle of debt longer and more expensive,” said Don Baylor, a senior policy analyst at CPPP. “The data indicate a clear shift on the part of the industry to shrink the single payment loan market share and make more long-term loans to guarantee that Texas consumers remain in debt for most of the year.”
In addition, the term for these installment loans grew in 2013. With the loans lasting a longer period of time, lenders are able to charge even more crippling fees.
CPPP's report also included a list of policy recommendations to help stem the growing tide of payday loan burdens. These include improving local and regional data collection, increasing enforcement of disclosure requirements, requiring more transparent pricing, and working with the Consumer Financial Protection Bureau to create stronger regulations around the payday lending industry.
Unfortunately, it's unlikely that Texas will lead the way in the reform necessary to transform the payday lending industry. William White, the chair of the Texas Finance Commission who was specifically appointed by Rick Perry to oversee payday lending, is also the Vice President of a payday lending company. At least Texas mayors like Annise Parker are doing the right thing, and stepping up regulations on predatory payday lenders.
As long as the payday lending industry is allowed to continue unchecked, lenders will keep finding ways to take money from consumers. This new report from CPPP confirms that it's high time our politicians take action against this harmful industry that is making a profit from poor and vulnerable Texans.