Texans borrow $3 billion annually from payday lenders. These businesses have operational methods that work to the detriment of families who are desperate to obtain quick money. Despite 10% constitutional limits on direct interest, lenders exploit loopholes by charging compounding unregulated finance charges and fees.
Although the loans are sold as two-week products for emergency expenses, many borrowers use them to cover regular expenses. If the loan is not paid off at the end of the term, the loan is then “rolled over.” A new loan is originated for the outstanding debt, and assessed new origination and compounding finance charges. On average, borrowers end up indebted for 5 months of the year on their original two week loan. Origination fees and finance charges plus interest add up to an average APR of 500%. 70% of Texas payday loans are for $500 or less.
We have created a Predatory Loan Conversion Program to assist those we serve in getting out from under these crushing debts. Through the help of a cooperating credit union, we help those in need convert their high interest loans into share secured loans at a lower interest rate. This program has received financial support from local Catholic Campaign for Human Development funds from the Diocese of Austin, the Texas Financial Education Endowment, and the Texas Bar Foundation. and we are very glad to operate this program with Bishop Vàsquez’s support.