When the pandemic struck and shelter-in-place orders were implemented, uncertainty reigned. How long would this last? How serious is it going to get? Restaurants closed. The bars were empty. Toilet paper was missing. Many have adapted to working from home or, worse, loss of income.
To support the economy, Congress passed a $ 2,000 billion CARES law, which established the Paycheck Protection Program (PPP), a massive lending effort overseen by the Small Business Administration (SBA) to help those with income disappeared and, more importantly, lacked easy access to cash.
However, not everything went according to plan, in terms of money for those who needed it most. Firms with savvy accounting departments clawed back the loans, while mom-and-pop business owners found themselves wandering through bank parking lots trying to figure out where the door was and how they got kicked out so quickly. .
Texas apple, a social and economic justice advocacy group, has studied a small slice of the PPP pie. “[We] began to explore the potential abuses of this financing, particularly with respect to an industry with a habit of trapping Texans in a cycle of debt – the payday loan and auto title companies, ”said organization in a recently released report.
Payday and auto title loans are theoretically intended to cover unforeseen expenses and specifically involve borrowers repaying the loans with their next paycheck; with auto title loans, cars serve as collateral. Interest and fees are often exorbitant, triggering a cycle of new loans and new fees for those who cannot repay quickly.
In an example provided to Texas Appleseed, a South Texas grandmother received a loan of $ 1,800 on her car title after losing her job due to COVID-19. In the end, she repaid $ 5,500 for the original loan to a company that received a $ 25 million loan from the Federal Reserve at an APR of 3.5%.
“Texas stands out from all but a handful of other states with no cap on total fees for payday loans and auto title loans,” Texas Appleseed reported. “The result has been a trend for high APRs and increasing fees.”
Initially, payday lenders were not allowed to tap into the PPP pool. They cried foul and sued, but ultimately dropped the lawsuits in favor of a faster path: Congress. Last April, Politics reported that 28 members of Congress wrote to the SBA asking that “small non-banks” be allowed to apply for PPP funds. Representative Lance Gooden, a Republican whose district includes parts of Dallas County and parts of the Southeast, provided one of the signatures. (According to FollowTheMoney.com, Gooden’s 2020 election campaign received $ 71,300 from the payday lending and securities industry.) Gooden did not respond to a request for comment.
Eventually, not only were the coffers opened to payday loan companies and auto title lending companies, according to Texas Appleseed, they were also given preferential treatment. “They were also among the first recipients of the funds,” the report said. “Thirteen of the fifteen operations obtained the loans in the first month of the program’s deployment. In fact, many of these loans were made before it was clear that payday loan and auto title operators qualified.
In addition to the fast pass, these lenders received more money. While most small businesses received an average of $ 567,033 per loan, breakdown and auto title operators received an average of $ 1.4 million. In total, statewide payday loan and auto title companies received more than $ 45 million in P3 funds and continued to offer loans at interest rates of 200% to 500%. % during the pandemic.
While most PPP funds were for wages, according to the SBA, up to 39% of the loan amount could be used for “non-wage costs” and still be forgivable. This means that 39% of the $ 1.4 million on average could be loaned at an average annual rate of 200-500% and no pennies have to be repaid.
LoanStar Title Loans, the Texas subsidiary of Wellshire Financial Services LLC, received a $ 25 million loan at 3.15% through the Main Street Lending Program. “The loan, intended to support small and medium-sized businesses, has a term of five years and includes no principal payment for two years and no interest payment for one year. Yet that same company grants auto title loans to Texans at over 350% APR, ”Texas Appleseed reported.
Todd Frankel at The Washington Post reported that LoanStar and other Wellshire subsidiaries are “part of a multi-state securities lending empire led by Atlanta businessman Rod Aycox” who was also a major donor to former President Donald Trump.
Federal Cash Advance of Oklahoma, a Texas-based company that operates under the name CashMax, received $ 944,400 in P3s. LoanMe got $ 4.8 million. MoneyLion Inc. took home $ 3.2 million.
According to The data collected by the Texas Office of Consumer Credit, the average APR on an installment payday loan in 2019 was 490%; securities lending averaged 418%. A total of 18% of Texas borrowers repossessed their cars (42,788) in 2019 and paid a total of $ 1.64 billion in costs alone.
Cities can make regulations on these businesses, but even that is difficult. In 2019, Texas Attorney General Ken Paxton overturned a Dallas settlement when he ruled that “signing loans” and “small loans” were not the same as loans. payday, allowing businesses the city had been working to re-regulate into the game. Last month, the Dallas City Council voted unanimously, minus an absent mayor, Eric Johnson, to include these types of lenders in the game. regulation, thus closing the loophole.
United Way of Metropolitan Dallas has a long history of working with Texas Appleseed and the City of Dallas to combat predatory payday lending practices. Stephanie Mace, vice president of Strong Communities at United Way Dallas, says the pandemic has led to an increased need for all types of financial support.
“Additionally, employers can help by providing their employees with access to a reasonable and secure loan as a benefit to their employees – without risk to their business. Options include CVX and TrueConnect“Macé said.
State Representative Diego Bernal of San Antonio introduced Bill 206 aimed at curbing predatory lending at the state level.