Stop Payday Lending Abuse Initiative Gains Momentum With Resolution in El Paso, Launch of New Web Site www.stoppaydayabuse.org

AUSTIN, Texas, March 16 /PRNewswire-USNewswire/ -- Cities and towns across Texas are urging legislative leaders in Austin to close a loophole in state law that allows payday lenders and auto title lenders to charge exorbitant rates for short-term loans, fostering a cycle of dependency that often leads to financial ruin.

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Today, the El Paso City Council unanimously adopted a resolution by Councilmember Susie Byrd calling on the Texas Legislature and the Governor to stop usurious lending and require these operations to comply with the same standards as licensed consumer lenders in Texas. Meanwhile, a group of consumer and public interest organizations, including AARP, launched a new Web site – www.stoppaydayabuse.org – with information, a call to action and opportunities for consumers who have been victimized by these practices to share their stories.

In December, the City of Brownsville placed a six-month moratorium prohibiting these lenders from opening any new "money stores" in town.  Other cities have gotten into the act as well, most of them adopting zoning laws that prevent the expansion of these operations without a special permit.  Among them are Irving, Mesquite, Sachse, Richardson, Garland and Little Elm.

Bob Jackson, director of AARP Texas, noted that AARP will continue working with local officials in every corner of the state to urge similar actions.

"The abusive lending practices of these largely unaccountable operations drain community wealth and trap consumers into a destructive cycle of debt," Jackson said.  "We hope that these efforts at the local level will spread like wildfire in 2010 and signal to the Texas Legislature that Texans are serious about ending these abuses."

Payday loans are cash advances due by the borrower's next payday. Auto-title loans are similar but secured with car titles. Borrowers of these two types of loans can incur fees from both their lenders and their banks. They can lose their vehicles, even if they've paid hundreds or thousands of dollars in interest and fees.

Payday and auto title lenders use a loophole in state law to charge Texans an annual percentage rate (APR) of more than 500% for loans by operating as "credit service organizations." This allows them to escape any regulatory oversight and consumer protections that apply to other lenders.  They operate a multi-billion dollar lending business in this state, yet, unlike most other lenders, are not licensed, regulated or subject to any meaningful consumer protections.  

Texas has more than 2,800 payday lenders and auto title lenders.  Among the key characteristics are:

• Average payday loan borrower pays $840 for a $300 loan.
• Women make up the majority of payday loan borrowers.
• Payday and auto-title loans do not generate sales tax revenue for local governments.
• Concentrations of payday and auto-title locations give neighborhoods a look of economic decline and hinder other, more beneficial businesses, from locating in those neighborhoods.

Fifteen states and the District of Columbia have adopted an annual percentage rate limit of 36% or lower for these small loans.  The federal government has adopted a similar rate cap for payday and auto title loans to the military based on a Department of Defense finding that the loans "undermine military readiness, harm the morale of troops and their families, and add to the cost of fielding an all-volunteer fighting force."

AARP is a nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole.

SOURCE AARP Texas