The right not to be imprisoned for debt has been guaranteed to Texans since the adoption in 1836 of the Constitution of the Republic of Texas. But that hasn’t stopped some payday lenders in recent years from illegally filing check theft complaints against non-paying borrowers.
Simply threatening with criminal charges is against the law, but Texas Appleseed uncovered widespread abuse of check theft charges in a recent investigation. The nonprofit group lodged a complaint in December about the practice with the Federal Office for Consumer Financial Protection, the Federal Trade Commission, the Office of the State Consumer Credit Commissioner and the Texas Attorney General’s Office.
According to the Texas Finance Code, a contract between a borrower and a payday lender must state that “a person cannot threaten or sue a consumer regarding a check or other debit authorization provided by the consumer as security for a transaction in the absence of counterfeiting, fraud, theft or any other criminal behavior.
It is not just a non-profit organization that is concerned about this practice. The state’s consumer credit watchdogs issued an advisory against him in 2013 and last year a major Irving-based lender was ordered to pay $ 10 million in refunds and penalties due of his use of this practice.
Check theft charges come into play, as payday lenders often require borrowers to write one or more post-dated checks to cover what is supposed to be repaid. If a lender tries to cash a check but cannot due to insufficient funds, then the lender files a complaint requesting that the borrower be charged with check theft. District attorney’s offices are not required to accept cases – in fact, Texas Appleseed and others say it is illegal for them to lay such charges – but group investigators have found prosecutors have found them. often accepted because the fees charged helped financially support the offices. “hot control” divisions.
In its investigation, Texas Appleseed, sampled from just eight counties, found more than 1,500 criminal complaints against borrowers between 2012 and 2014. These inappropriate complaints are only a tip of the iceberg, said Ann Baddour, principal. fair financial services at Texas Appleseed.
Investigators found that in some courts almost half of check theft cases were based on complaints from payday lenders. Baddour said that to qualify as a felony, a borrower’s action must constitute fraud, and not simply a lack of funds or failure to repay the loan on time.
Southern Methodist University law professor Mary Spector said real check theft is very different from just taking out a loan and not being able to pay it back.
“Payday lenders have used the criminal courts as a vehicle to collect debts,” she said. “This type of debt collection was made illegal by the Federal Fair Debt Collection Practices Act,” which was passed in 1977.
She said the Texas Bill of Rights protects residents from criminal debt suits, but debt collection law enforcement is weak in Texas, allowing payday lenders to use illegal tactics to collect. civil debts.
Baddour said such tactics have been a long-standing industry practice. “It started very soon after the payday loan industry took hold,” she said.
The Office of the Consumer Credit Commissioner issued an advisory in 2013 saying that payday lenders “should not use a district attorney’s hot check division simply as a means of collecting debts.”
ACE Cash Express was the Irving-based lender ordered to pay $ 10 million in refunds and penalties by the Federal Bureau of Consumer Financial Protection for the practice of debt criminalization in 2014.
At the time, the Texas Observer quoted CFPB Director Richard Cordray as saying that ACE Cash Express used “false threats, intimidation and harassing calls to intimidate payday borrowers in a cycle of indebtedness “.
The agency found that the threat of criminal charges was widely used to collect debts, even though the company did not take civil suits against customers for non-payment.
ACE Cash Express officials have not returned calls or emails from Fort Worth Weekly asking for comment on this story.
The Consumer Services Alliance of Texas, which represents nearly 80% of the payday loan industry in that state, issued a statement in response to the Texas Appleseed investigation and complaint, saying the “best practice” guidelines prohibit their member companies from threatening or filing criminal complaints against borrowers and that lenders are subject to expulsion from the group for the practice.
Baddour said state regulatory agencies had only received about one complaint for the 500 abuses his organization saw. She attributed the gap to the bullying tactics of the breakdown industry. Plus, she said, most customers don’t know this practice is illegal.
Regulators don’t understand how widespread this practice is, Baddour said.
Payday lenders’ check theft complaints represent a cash flow prosecutors don’t want to give up, the state’s consumer credit agency found in 2013.
Austin attorney, Tracey Whitely, represented a client for theft charges by check from a payday lender, and in this case, the charges were dismissed.
“Payday lenders use the power of the courts to collect debts,” she said. “A lot of people who are afraid of criminal charges end up paying more fees.”
Whitely said the practice of criminal prosecution is also adding to the debt cycle fostered by the payday loan industry. The costs of criminal cases are on top of the huge fees charged by lenders, she said.
Julie Hillrichs, spokesperson for the Consumer Services Alliance, argued that these practices are not commonly used by lenders.
“I’m not going to talk [about] sole proprietorships, ”she said. “Our companies understand our best practices. Failure to follow guidelines and all applicable federal and state laws has repercussions. The laws work in Texas and at the federal level. They gave rise to complaints. The complaints have been resolved. … I think our members have unanimously approved the guidelines with the intention of following them in good faith.
She said there are instances where borrowers engage in fraud – for example, writing a post-dated check for a payday loan and then closing the account before the check is cashed.
Baddour said more investigation and enforcement of existing laws and policies are needed. She said the peace courts are a big part of the criminalization of the debt problem, but are more difficult to investigate.
She urged consumers to be aware of and fight against this practice. Borrowers, she said, can go to the Texas Fair Lending Alliance website (texasfairlending.org) to arm themselves with the information and tools they need to make informed decisions about borrowing money. .
“It’s a place where people can go to get help to fight wrongly threats,” Baddour said. “I think what’s so insidious about this practice is that it uses our faith in the criminal justice system to collect wrongly debt.”