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Payday Lending: Too Good to Be True?

Recently AARP Texas had the opportunity to talk to Preston White, a Killeen retiree, who wanted to get his daughter money for her family fast. Less than an hour after walking into a payday/auto title loan store, he was able to secure $4,000 using his truck as collateral. White soon realized what the payday/auto title loan staff hadn't made clear: At the end of 30 days, he could either pay off the entire loan (which amounted to more than $5,000 after fees and interest) or pay $1,300 to save his truck from being repossessed for 30 more days. This $1,300 fee would be charged every 30 days until the entire loan, its interest and all fees were paid in full.

White, like many others before him, had inadvertently stumbled into the world of predatory payday and auto-title loans, which trap consumers into cycle of debt. Unable to pay the full amount back by the due date, borrowers often renew their loans several times before fully paying them off, incurring exorbitantly high fees each time.

Payday loans are cash advances due by the borrower's next payday. Auto title loans are similar but are secured with car titles. Borrowers of these two types of loans can incur fees from both their lenders and their banks and lose their vehicles, even if they've paid hundreds or thousands of dollars in interest and fees.

A loophole in Texas law allows lenders to charge Texans an annual percentage rate (APR) of more than 500 percent. By operating as "credit services organizations," these lenders escape regulatory oversight that apply to other lenders. They do billions of dollars in business around the state each year.

These lending outfits offer what seems to be a quick fix to financial problem, they hand out thousands of dollars with as little documentation as a bank statement, a pay stub or a car title. They tout "no credit restrictions" and no background check.

If it sounds too good to be true, it probably is. Read the fine print.

AARP Texas supports local and statewide efforts to reign in abusive lending in Texas. Local governments can restrict these lenders within their boundaries. Several Texas cities have already applied zoning laws to regulate how many of and where these lenders can operate. San Antonio must now approve new storefronts. And Brownsville is considering a six-month moratorium on certain lenders.

Fixing the loophole in state law to hold payday and auto title lenders accountable won't be an easy fight. According to the Texas Tribune, these companies have donated more than $1.4 million to Texas candidates' political campaigns in the past nine years.

Want to help fight predatory loans? Tell us your story about these lenders, or help us find others who have been affected. Contact us, toll-free, at 866-227-7443.

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