FindLaw KnowledgeBasePublished: 2013-01-10
Now that the holiday season has passed and 2013 is officially here, many Texans are trying to make good on their New Year’s resolutions to get their finances under control. Unfortunately, for individuals who relied on payday loans, car title loans or other types of storefront lending to finance their holiday spending, this may be easier said than done.
Payday loans offer a quick way for borrowers to get access to short-term loans, usually between $400 and $1,000. While these loans may not seem too costly at first, their strict terms and high fees can make them extremely difficult to pay back.
Payday loans are expensive. Most payday loans have 14-day repayment terms. According to a report by NBC 5 Investigates, in exchange for a two-week loan, borrowers typically pay a fee of about $120 for each $500 borrowed. This equates to an annual percentage rate of approximately 600 percent, a rate significantly higher than nearly any credit card or bank loan.
The costs grow when borrowers cannot afford to pay back the entire loan on time — a fate that befalls three out of every four payday loan borrowers. Borrowers must pay that fee again each time they want to refinance the loan. In a matter of just a few weeks, the fees and financing charges can outgrow the loan principal. It is not hard to see how serious financial problems — and even bankruptcy — could quickly follow.
New regulations for payday lenders?
Payday loans tend to be a bigger problem in Texas than in the rest of the country, largely because the state has so few regulations. When borrowers apply for payday loans, there are very few checks and balances to determine whether they can actually afford to pay the loan back. In addition, because Texas law does not place limits on the fees that can be attached to payday loans, borrowers often end up paying about 50 percent more for the same loans offered by the same companies.
This may change in 2013. Texas lawmakers are geared up to place new regulations on the payday lending industry. At the very least, they hope to replace the current set of piecemeal municipal regulations with one overarching set of rules for the entire state.
The industry, though, has a lot of clout and is expected to push back against the proposed restrictions. According to data from Texans for Public Justice, payday lenders donated more than $1.6 million to Texas campaigns during the 2012 election season. The industry also has a team of high-paid lobbyists at its disposal — in 2011, they were able to defeat efforts to cap lending rates.
Help for struggling borrowers
If you or a loved one is struggling with the consequences of a payday loan or other types of unmanageable debt, know that there is help out there. There are a number of debt management solutions, including filing for bankruptcy, that can help you get back on your feet. Talk to a Texas bankruptcy attorney who can help you understand your options.