Driving along Denton Highway, the main thoroughfare of Haltom City, you pass churches, fast-food restaurants, and automotive repair shops. Here and there amid the other storefronts, brightly colored signs beckon with promises of “100 percent approval” and “Everyday is payday” — tempting invitations from one of the most pervasive new industries in this blue-collar suburb: payday lenders.
The city just east of Fort Worth is home to 16 “credit access businesses,” the new industry term for payday and auto title lenders. Unlike banks and savings and loans, these businesses aren’t regulated by Texas usury laws, which limit fees and interest rates. So payday lenders can charge annual percentage rates exceeding 500 percent, plus fees ranging from $20 to $30 for each $100 that is borrowed.
As the recession has deepened and dragged on, the lure of such lenders becomes even stronger for people who see few other ways out of financial predicaments. And where once such businesses used to cluster in the poorer neighborhoods of big cities, they are now firmly planted as well in smaller towns, especially less affluent suburbs.
Mosley-Eckler said about 30 percent of her agency’s clients report having borrowed from payday lenders in the last few months, and it’s a big reason why those clients now need the agency’s help.
Most have taken out loans to cover unexpected health problems or work-related issues. “If they get a flat tire, they take out a payday loan,” she said. “If they don’t have insurance and their kid needs a prescription, they will take out money.”
Payday lenders don’t choose their locations based on race, she said. “They target based on poverty, and Haltom City has a lot of poverty. If you’re vulnerable, you’re their target.”
State Sen. Wendy Davis, who has worked to get stronger regulations against those lenders, thinks the recession has broadened the payday companies’ target audience. “We’re not just talking about the destitute,” the Fort Worth Democrat said. “Their customers in a tough economy aren’t just people who live in poor urban areas. Their customer is middle America.”
The state’s Office of Consumer Credit Commissioner regulates rates that banks can charge for commercial and consumer loans. As of April, the cap on such loans is 18 percent.
But payday and auto title lenders get around that law by registering as “credit service organizations.” Texas, according to a recent study by The Pew Charitable Trust, is one of 28 states that let payday lenders charge customers annual rates higher than 391 percent and refuse to accept partial repayments. Fifteen states don’t even let payday lenders set up shop, and the remaining eight have tough restrictions, like caps on fees and extended repayment periods.
There are now a dozen payday lenders operating in North Richland Hills, a situation that worries some leaders of that city.
That’s where Larry, 29, lives with his young daughter. He works full time, but one month last year he was $300 short on his rent, and instead of paying the $125 late fee, he took out a payday loan online with Ameriloan. He borrowed $500 and got charged a $150 fee — $30 for each $100 borrowed. Five weeks later, when the loan came due, he didn’t have the money. So he had to take out another loan — and another and another.
Over the course of three and a half months, he borrowed $1,800 from eight different lenders, some online and some located in his neighborhood. A year later, he owes $5,000. “I’m going through Chapter 7 [bankruptcy] right now,” said Larry, who asked that only his first name be used. He said he doesn’t want to ever take out another payday loan.
“It’s a rip-off,” he said. “It really killed me.”
North Richland Hills is taking action to curb its flourishing new industry. In February 2011 the city council passed an ordinance that requires “alternative financial establishments,” including payday lenders, auto title lenders, and check-cashing stores, to get special-use permits before opening up shop there. To get one of those permits, the business has to make its case before the city council and the planning and zoning board.
“We were seeing them pop up in quite a few areas,” said John Pitstick, director of planning and development for North Richland Hills. “We are in favor of banks, but they are regulated by federal laws, and many of the alternative financial establishments are not regulated well.”
Pitstick said the city doesn’t want to outlaw such businesses, just “scrutinize them.”
With 16 payday storefronts, Haltom City has more such lenders than any other suburb in Tarrant County. It’s also one of the county’s poorest municipalities, with an average household income of just a little more than $41,000 a year, compared to the state average of close to $50,000.
According to Stephen Reeves, legislative counsel with the Christian Life Commission, an advocate of credit service organization reform, Haltom City has the perfect demographic for the payday industry. Statewide, areas with average incomes of $30,000 to $40,000 have seen an explosion of payday and auto title lenders, he said. People at that income level tend to have steady paychecks of some kind –– a requirement to qualify for a payday loan –– but also may have few other financial resources.
The Pew Charitable Trust study confirmed that folks who earn less than $40,000 a year are much more likely to use payday lenders. But there’s more to it than just income. Statistically, your chances of taking out a payday loan are greater if you don’t have a four-year degree, rent instead of own, are African American, and are separated or divorced.
Rob Norcross, spokesperson with the Consumer Service Alliance of Texas, a trade organization representing state payday loan and auto title lenders, said he thinks store locations are based more on “traffic patterns and the ability to get site approval … than the income of people who live in a certain neighborhood.”
Still, affluent suburbs like Colleyville and Southlake have no payday lenders, and Keller has only two.
More Texas towns and cities, including Dallas and San Antonio, have approved restrictions on such businesses in the last few years.
In Colleyville, payday lenders aren’t banned outright, a city official said, but for the last five years they have been required to get a special-use permit and approval from the city council, which has never happened.
Richland Hills, with only three payday businesses, is considering zoning restrictions to discourage others. “Our concern is that they are anti-economic development,” said Matt Shaffstall, Richland Hills’ economic development specialist. One concern, he said, is that payday lenders provide no sales tax activity.
Even Haltom City has recognized the problem.
“When you’re looking at doing redevelopment, payday lenders don’t give a good impression,” said Susan White, business development coordinator for Haltom City. “For example, I went to this networking event and met a guy interested in the Belknap corridor, but when he saw the number of payday loan places on Denton Highway, he said, ‘No way would I put my development there.’ ”
In February, Haltom City passed zoning restrictions that require car title loan businesses, check cashing businesses, and payday lenders to go before the planning and zoning department and city council to petition for a special-use permit. The permit is transferable to new owners, so if one lender closes its doors, another could move in without having to get a separate permit.
James Pliska, Haltom City’s director of planning and development, said the council might let another payday lender into the city, but, “They are going to have to be committed to the neighborhood as a whole.”
Of course not every city is jumping onto the bandwagon: Bedford, just east of Haltom City, has 13 payday businesses and no zoning restrictions.
Neither does Fort Worth, despite a strong push by then-District 8 council member Kathleen Hicks. In 2010, Hicks tried to convince the council to maintain a zoning ordinance that prevented existing lenders in now-restricted areas to rebuild a shop if it closes down or gets destroyed. She got little support on the council.
Last year Davis filed legislation to cap interest rates and fees charged by payday lenders, but the bill failed — thanks in part, she said, to a multimillion-dollar lobbying effort by the industry. The Texas Legislature did pass a bill requiring such lenders to clearly post their rates and fees inside their stores. They are also required to register with the Office of Consumer Credit Commissioner, provide information and background checks on senior officers, and maintain at least $25,000 in net assets.
Davis said she’s not backing away from the fight, but she’s also trying to create alternatives for those who need short-term loans. “Our credit unions are starting to enter into the arena in a very constructive way, charging reasonable fees and allowing for partial repayments,” she said.
Churches and faith-based organizations are getting involved in the fight because they’ve seen how much harm such lenders can do to communities.
The Rev. Michael Bell, former president of the Baptist General Convention of Texas, has counseled many people who’ve gotten into trouble with such lenders near his church in southeast Fort Worth. “They prey on the vulnerable and those who find themselves with their backs up against the wall,” he said. “It pushes these people to the point of desperation. [Some people] … don’t understand the ramifications of receiving the loan.”
Bell told the story of a woman who’s surviving by donating blood and participating in medical research trials because she lost her job and got into debt with payday lenders.
“They are messing up the lives of so many people,” he said.
A major problem is that many residents don’t understand how the payday loan business operates, said Steven Ashbrook, who also works at Catholic Charities. “Some of our clients think they are like banks,” he said. “They walk into a payday lender and think they’re regulated.”
He said his clients come to trust the payday lenders in their neighborhoods because they see them each week, when they come back to renew their loans, again and again.
But it’s not all bad, Mosley-Eckler argued. “Payday lenders do have their place. … It is a viable product. Some people can use them in a responsible way.” l
Fort Worth-based freelancer Sarah Angle has written for national and regional publications.