Are Texas Payday Loans Still Dangerous in 2019?

Inside Subprime: May 14, 2019

By Lindsay Frankel 

Texas has often been referred to as the “Wild West” of payday loans because of the state’s permissive laws governing high-interest payday loans. In the absence of regulations, payday loan businesses have flourished in Texas, draining more than $1.24 billion in fees from Texans each year, according to the Center for Responsible Lending.

Payday loans are short-term loans with high interest rates that are billed as fast and easy solutions to emergency financial difficulties. These predatory loans don’t require a credit check, which makes them appealing to people who may be denied a loan from a traditional financial institution. And Texans in need of quick cash don’t need to look far to find a payday loan storefront that will issue a no credit check loan; there are more than twice as many payday loan stores in Texas as there are McDonald’s restaurants.

But while a payday loan might seem like a lifeline to financially desperate people, the high interest rates associated with these loans often exacerbate financial hardship for low-income borrowers. The average annual interest rate charged on payday loans in Texas is 454 percent, according to data from Pew Charitable Trusts. That means it costs Texans $701 just to borrow $300 for five months on average.

Payday loans are intended to be paid back in two weeks, which lenders argue justifies the exorbitant annualized interest rates. But for financially strapped individuals, it can be impossible to pay back these loans in the time allotted. The Consumer Financial Protection Bureau found that about 80 percent of all payday loans get renewed or rolled over. This behavior of re-borrowing leads to mounting interest and fees that trap borrowers in debt.

Beyond licensing fees and annual reporting requirements, Texas does nothing to regulate payday loans. There is no limit to what payday lenders can charge in interest and fees.

In an effort to protect consumers from the financially devastating effects of predatory payday lending, 45 Texas cities have adopted a unified ordinance that limits the loan amount based on the borrower’s income and requires that each payment reduce the principal balance. City ordinances can’t impact interest rates, however; only the state legislature can impose a rate cap.

But newly proposed legislation threatens to make Texas payday loans even more dangerous, since it would nullify city level restrictions on payday loans. The bill would keep cities from placing restrictions on businesses that operate in more than one Texas city.

And another bill would expand predatory lending in the state by reversing the designation of sale-leaseback transactions as loans. The annual interest rates on sale-leaseback transactions can be as high as 790 percent, and the new legislation would allow this type of lending to flourish without any oversight.

Because the CFPB has moved towards deregulation of the payday lending industry under the Trump administration, residents of states with lax requirements are left particularly vulnerable to the risks of using payday loans. Given the permissive laws and resulting high interest rates, Texas is one of the most dangerous states for payday loans in 2019.

Learn more about payday loans, scams, and cash advances, and check out our city and state financial guides, including Texas, Arlington Payday Loans, Austin Payday Loans, Dallas Payday Loans, El Paso, Fort Worth, Houston, Irving, Killeen, McAllen, Plano, Round Rock, San Antonio, Tyler, Waco and more.