Payday & Auto Title Loans in Texas A study by the League of Women Voters of Texas Education Fund Elizabeth Erkel, Study Chair

Focus: To explore the… Accessibility and impact of payday and auto title loans & Current regulations on payday and auto title lenders in Texas The League of Women Voters of Texas Education Fund2

What are payday & auto title loans? A small, short-term cash advance Obtained within an hour from a Storefront or Internet site Bank account or vehicle title pledged for payment 3

What are the loans used for? Basic living expenses, e.g., utilities, car payment, prescription drugs, school books & supplies *E.g., medical emergency, car or house repair. **E.g., vacation, entertainment, gifts. Unexpected expenses 16%* Something special 8%** Other 5% Unknown 2% The Pew Charitable Trusts, Payday Lending in America: Who Borrows, Where They Borrow, and Why, 2012, p. 14.

Why use a payday or auto title loan? 5 References available upon request.

Who are the lenders? Most are independent, solo stores Average 3 employees Offer small loans to those with an inadequate credit score or blemished credit report. 6 References available upon request.

Who wants change? Texas Fair Lending Alliance Texas Municipal League Faith Leaders for Fair Lending Texas IMPACT Center for Responsible Lending The Pew Charitable Trusts 7 References available upon request.

Accessibility in Texas Texas Appleseed, 20148

Percent Households Using Payday & Auto Title Loans, by Recency of Use & Geographic Area, 2013 Federal Deposit Insurance Corporation, Custom Data Table Tool, 2013

Cost of a $500 Short-Term Loan, by Type, Maximum Charge, and State, 2015 StateMaximum ChargeCost ($)APR Single Payment, 2-Week Payday Loan Minnesota Oklahoma N. Dakota Texas 33% APR + $25 <$301 = $15/$100 + $301-$500 = $10/$100 20% of principal + $ % APR + any fee % 338% 523% 660% Single Payment, 30-Day Auto Title Loan Florida Arizona Alabama Texas 30% APR 15%/month 25%/month 10% APR + any fee % 180% 300% 310% Sources listed in Facts & Issues References. 10

Estimated Biweekly Household Income & Expenditures for a Single-Parent/One-Child Family, Dallas-Fort Worth-Arlington Metropolitan Area, 2014 $1,060* $1,334 $627 $1,961 *Based on average hourly pay ($13.24) for sales and related occupations in the Dallas-Fort Worth-Arlington Metropolitan Area in 2014 (Better Texas Family Budgets, n.d.). *

Texas Law Interest * – 10% APR Consumer Loan fee limits ** – 2-wk APR/$500: 310% – 1-mo APR/$500: 170% Credit Services Organizations *** – Fee “as agreed upon between parties” – Disclosure required Posting Disclosure in writing to consumer 12 *4 T EX. F IN. C ODE § **5 T EX. F IN. C ODE § ***4 T EX. F IN. C ODE §

Cost ($) of a $500 Single Payment, Payday & Auto Title Loan, by Type Loan, Type Charge, & Texas Statute, 2015 Type of Charge Credit Services Organizations * Consumer Loans ** Single Payment, 2-Week Payday Loan Principal Acquisition fee Lender interest (10% APR) Total charges APR660%319% Single Payment, 30-Day Auto Title Loan Principal Acquisition fee Lender interest (10% APR) Total charges *** *** APR310%167% *5 T EX. F IN. C ODE § **4 T EX. F IN. C ODE § ***Includes $33 title lien fee. 13

City Regulation Business ordinances – 21 cities Land use ordinances – 11 cites Both – 3 cities 8 legal challenges – All dismissed 14 Texas Municipal League, May 2015

Q: Do payday & auto title loans ultimately help or harm consumers? A: The jury is still out! 15 References available upon request.

16 Is financially viable Maintains access to credit Safeguards consumers How can the payday and auto title loan market be regulated so it:

League of Women Voters of Texas Education Fund17