Local and statewide groups are seeking payday and auto-title loan reform in Waco and McLennan County. Organizers say payday lenders are draining millions from the local economy.
Back in 2007 Waco resident Robin Reid was getting ready to quit her full-time job to go back to college.
“I only made a little over $8 an hour," Reid said. "Did good to make ends meet as it was with rent, utilities, car insurance, car payments and all those things.”
And when her car started having some serious mechanical problems – Reid wasn’t sure how she was going to pay for the repairs. So she started looking into some pay day loans online.
“I kind of started researching and came across these pay day loans," Reid said. "And thought well let me try this cause I really need my car fixed. I didn’t really think long term.”
Reid ended up taking out $500 in loans to cover the repair costs. And per agreement with the lenders --- she had to pay the loan back by the time her next paycheck came in. But Reid realized her next paycheck wasn’t going to be able to cover the nearly $200 of added interest on the loans. So she started paying fees to extend the loan – but that put her further into a financial hole.
“So I took out some other loans, other pay day loans to pay those and it just became a vicious cycle. A catch 22 snowballing into chaos,” Reid said.
Reid admits she was young and inexperienced when this happened. She says it was hard to find any resources to help her. And the lenders seemed only interested in keeping her in that cycle. So she ended up defaulting on the loans and hoped one day her credit would eventually recover.
What was first promoted as “quick and easy” soon became a “vicious cycle.” Alexis Christensen with Waco Community Development says this happens too often to Waco residents--especially in low-income communities.
“Initially payday and auto title lenders do go to low income areas because most frequently there’s not a financial institution or anywhere else where you can access capital,” Christensen said.
Christensen and other local groups say Texas is the Wild, Wild West for lenders-- there are no state regulations on payday and auto-title loans. According to the state’s Office of Consumer Credit Commissioner, the Waco area lost more than $10.5 million in 2013 because of excessive loan fees and defaults. 62-percent of all loans from Waco were refinances. And over 600 cars were repossessed. Christensen says this is because there are lenders in the city with crippling interest rates ranging anywhere from 500 to 1,000-percent APR.
Metropolitan areas like San-Antonio, Austin, Dallas and smaller cities like Belton and Amarillo have all passed city ordinances regulating usurious loans. Some of these reforms include limiting payday loans to 20-percent of a borrower’s income and auto-title loans limited to lesser than 3-percent of the borrower’s total income.
But Waco has yet to pass any such reform.
“We really want to work with the city," Christensen said. "We’ve found that they have been good partners in the past. And so, our goal is to show them that this is an issue. They want to do what’s best for the city and so do we.”
Last month about 80 people showed up to a community forum on the state of lending hosted by Christensen and Waco Community Development. The forum was also hosted by the local group Citizens for Responsible Lending, the Texas Catholic Conference and Texas Appleseed, a statewide social and economic watchdog group. She said they also discussed alternatives for lending at the meeting including working with local banks and individuals experienced in the finance sector.
"One of the big things I think everyone rallied around is alternatives," Christensen said. "We need to have something else that’s an option. An opportunity.”
Christensen says Waco Community Development and Citizens for Responsible Lending will continue to hold educational sessions. They’re also working on building a presence at city council meetings so they can start gaining momentum in passing regulations.
