When attempts to regulate payday lenders and auto title lenders flared up at the end of the 2013 legislative session, some advocates saw it as a sign that statewide efforts to curb Short-term predatory loans were a dead end. The lenders, who make huge profits by offering loans to the needy at extremely high rates, had flooded the legislature with money, and it seemed impossible to get meaningful legislation beyond their chosen advocates.
But at the local level, consumer advocates have had some success over the past five years. Cities continue to advance their own lending regulations. And some advocates are working to provide a convenient alternative to predatory lending through a lending model first established in Brownsville in 2011.
Retail banks in the region have found that many of their customers are often unable to access credit, such as home and auto loans, because their credit history has been ruined by short-term loan sharking. The banks helped create a new financial institution, the Community Loan Center of the Rio Grande Valley, to offer small loans at modest interest rates with relatively long repayment periods.
Commercial payday loans can carry interest rates above 400% and need to be repaid within months or weeks, often forcing financially troubled customers to refinance repeatedly, trapping them in a cycle of debt. In contrast, the Community Loan Center offers loans of up to $ 1,000, with a one-year repayment period at 18% interest.
The program is offered by area employers, and borrowers repay the loans by deducting small amounts from each paycheck. The loans come with free optional financial advice. Default rates are less than 5 percent.
Over the past two years, five more community lending centers have sprung up in Texas, Houston, Dallas, Austin, Laredo, and Bryan / College Station. It’s a model that funders hope to continue spreading around the state – but it’s only part of the solution, according to Howard Porter, a program manager at Texas Community Capital, who helps train and support community lending centers.
“We have made just over 7,000 loans in total,” Porter said. “It’s a good start, but the payday lending and auto title lending industry is worth almost $ 6 billion, according to the state, and we have made loans worth about $ 6 million. of dollars.”
Loans are only available to workers whose employers participate in the program, so they cannot help seniors or students, two groups that often resort to short-term loans. And while a variety of employers, large and small, have signed up, many are not interested in offering the service, Porter said. Yet in the absence of statewide regulation of lenders, advocates are partly relying on the benefits these local efforts offer. The step back against predatory lending is “a big puzzle with a lot of pieces,” Porter said. “Well, we have one of the pieces. “