Texas has a law strictly limiting payday loans. But since this limits lenders to a fraction of what they prefer to charge, for over a decade they have ignored it. To evade the law, they first partnered with banks because banks, which are federally regulated, can legally offer loans in excess of state interest limits. But when federal regulators cracked down on the practice in 2005, lenders had to find a new loophole.
Much like in Ohio, Texas lenders have started to define themselves as credit repair organizations which, under Texas law, can charge high fees. Texas now has nearly 3,500 such companies, almost all of which are, in fact, high-cost lenders. And the industry has successfully repelled all efforts to cap the rates it can charge.
Seeing the weight of state lenders, some cities, including Dallas, San Antonio and Austin, have passed local ordinances that seek to break the payday debt cycle by limiting the number of times a borrower can take out a loan. ready. Speaking to analysts earlier this year, EZ Corp’s Rothamel said the orders cut his company’s profits in Austin and Dallas by 90%.
But the company had a three-pronged counterattack plan, he said. The company had tweaked the product it was offering in its traditional outlets and had also started aggressively marketing online loans to customers in those cities. And the industry was pushing for a statewide law to anticipate local rules, he said, so that towing companies can stop “playing cat and mouse with cities.”