In Rick Perry's Texas, A Safe Haven For High-Interest Payday Lenders
In his three months in the national spotlight, Texas Gov. Rick Perry has presented himself as a champion of government deregulation, an advocate of paring back rules and agencies that he says prevent Americans from improving their fortunes.
But back in his home state, Perry has proven a reliable ally to one powerful local industry that has successfully exploited weak regulations to improve its own fortunes at the expense of its customers, assert critics: the payday lending business. These businesses populate strip malls throughout urban and rural Texas, charging hefty fees that effectively mean interest rates reaching 1,100 percent annually for desperate consumers borrowing against their next paycheck to make ends meet.
Large corporations that operate payday lenders, many of them based in Texas, have been steady contributors to Perry's political campaigns over the last decade, donating upwards of $200,000, according to Texas campaign finance disclosure statements. In 2004, Perry appointed William J. White, a senior executive of one of the nation's largest payday lending corporations, Cash America International, to a seat on the Texas Finance Commission, which is tasked in part with protecting the state's consumers. Two years ago, the governor elevated White to the chairmanship of that body.
"Just the idea of appointing someone like that at all to that kind of regulatory body," said Andrew Wheat, research director at Texans for Public Justice, a non-partisan policy group that has tracked the political influence of the payday lending business and other Texas industries, "It sends a signal of, 'Why bother?' 'Why bother to try to turn to regulators?' "
White said he is only one out of 11 commissioners on the Finance Commission, and therefore has very little input on any potential decisions or regulations developed by the agency. He said there was "zero" conflict between his position at Cash America International and his position on the oversight body.
"This is frankly a tired, old sad song that a few people have been promoting, and there's no validity to it at all," White said when reached by The Huffington Post. "As a commissioner, I have no more to say about it than virtually anybody else. And all parties that are a part of this have every opportunity to give their input."
Perry declined requests for an interview, but a spokeswoman for the governor dismissed any link between the campaign donations from the payday lending industry and White's appointment, saying in an email that "the governor makes appointments based on an applicant's qualifications and willingness to serve." She added that Perry was required under Texas law to appoint one representative from the consumer finance industry, which includes payday lending, to the oversight body.
But far from appointing one industry delegate, Perry has stocked the panel with representatives from the banking and mortgage industries, and lawyers who have worked for large financial corporations, while not naming a single voice for ordinary consumers, say watchdog groups.
As a result, say consumer advocates, the industry has been left to its own devices, much to the detriment of some of the state's most vulnerable people.
"It's almost like giving crack to a crack addict," said Roger Tillman, an overnight security guard in Houston who ran up balances of nearly $4,000 to several payday lenders and has stopped making the payments. "Their whole goal is to make it as easy for you as possible, because the easier they make it, the further they can suck you in."
Under White's chairmanship, the Texas Finance Commission has declined to act on hundreds of complaints from consumers asserting that were misled about the onerous terms of payday loans, and then harassed by collections agents once they are unable to pay off the loan. All the while, they say, the industry offers fresh infusions of credit to keep them going.
"It's very telling that nothing moved on this issue for so long, despite a lot of documentation and problems," said Ann Baddour, a senior policy analyst with Texas Appleseed, a consumer advocacy group that has been pushing for payday loan reform for years. "The Finance Commission has the capacity to study issues, to raise issues, to bring them before the Legislature, and they have not used that power."
Texas has some of the most permissive laws in the country when it comes to allowing lenders to charge hefty fees. As many other states have sought to rein in abuses by payday loan brokers in recent years -- setting strict caps on interest rates -- Texas has remained a largely unregulated safe haven for such lenders.
Texas has fairly strict laws on the books setting interest rates for lenders. But a conspicuous loophole in the law has allowed payday-lending businesses in particular to evade those rules, and regulators have so far opted not to crack down.
This freewheeling atmosphere, coupled with the state's huge population -- 25 million -- has made Texas a magnet for payday lending operations. Four of the nation's largest payday lending companies -- ACE Cash Express, EZ Corp., First Cash Financial Services and Cash America International -- are based in Texas. And the state has more storefront payday lending branches than any other, according to a recent report from industry analyst Stephens Inc.
The four largest publicly traded payday loan and auto title loan companies collectively earn six of every 10 dollars in profit from customers in Texas, the former Texas House Speaker Tom Craddick, a Republican, testified earlier this year.
In other states, regulators have been stepping up enforcement against payday lenders that charge excessive fees and rates of interests. That has made the stakes in Texas higher than ever.
"Texas represents a fairly significant portion of the national payday companies' revenue," said Diane Standaert, legislative counsel at the Center for Responsible Lending, a consumer advocacy group. "So as other states do the right thing by limiting the cost of these products, it became that much more important to protect this stronghold."
CYCLE OF DEBT
As the industry portrays it, payday lending provides a crucial service, enabling people in need of cash to get their hands on it in time to pay their bills while they wait for paychecks.
"You're helping a consumer who has a credit need," said Rob Norcross, a spokesman for the Consumer Service Alliance of Texas, an industry trade group. "If a consumer can't get a loan anywhere else, and if they're looking at bouncing a check or overdrawing a credit card and incurring penalty fees, or missing a utility bill and incurring late fees, wouldn't helping them get a loan make sense under this provision?"
But according to many customers, the industry takes advantage of people's desperation, presenting options that only make sense compared to the alternative -- failure to keep up with bills.
Tillman had a steady job as an overnight security guard in Houston for more than six years. The pay wasn't ideal at $9.50 an hour, but he had come to rely on a steady stream of overtime shifts, providing him sufficient money for rent payments and basic utilities.
But when the financial crisis struck in 2008, his company drastically cut back on overtime, leaving him with barely enough to pay his rent each month. When his car broke down soon after, he needed a quick infusion of $500 to ensure he didn't lose the shifts he still had.
So he went to Marpast of Texas, a payday loan broker with a storefront operation near his southwest Houston apartment, and agreed to a loan with an effective annual rate of more than 400 percent.
Tillman said he was well aware of what he was doing, and well aware that it wasn't the best deal for him. But he had no choice: His credit was already bruised from previous late payments on other bills.
"The key is the desperation you're in," Tillman said. "You know you're going to have to face them in two weeks, or the landlord on Friday, and that's really the catch-22 you're caught in."
When the loan came due two weeks later, Tillman was far from being able to pay off the principal plus a fee of more than $100, so he was forced to extend the loan, tacking another $100-plus fee onto the original $500.
And so it continued for another three months, with each successive fee sending him deeper into a morass of debt. He thought he was whittling it down over time, but once Tillman did the math he realized he was never actually paying off any of the principal. The fees simply kept mounting every two weeks.
"It's really like a sensation of drowning," said Tillman, 62. "You know you're getting in over your head, and you just keep hoping that somewhere down the line you'll get enough overtime to kind of right the ship."