When the pandemic hit and the on-site placement orders were implemented, there was uncertainty. How long would it take? How serious is this going to be? Restaurants closed. Bars were empty. Toilet paper was in short supply. Many have adapted to working from home or, worse, to loss of income.
To prop up the economy, Congress passed a $ 2 trillion CARES bill that introduced the Paycheck Protection Program (PPP), a massive credit effort overseen by the Small Business Administration (SBA), to help those whose incomes have disappeared and, more importantly, lack of easy access to cash.
However, not everything went as planned to bring money to the people who needed it most. Firms with savvy accounting departments tapped the credit while the business owners who had stumbled upon the bank wandered the bank parking lots to find out where the door was and how it had been locked so quickly.
Texas apple pits, a social and economic justice advocacy group, examined a small portion of the PPP money cake. “[We] began investigating the possible abuse of this funding, particularly in relation to an industry where Texans have historically got into a debt cycle – payday and auto title loan businesses, “the organization said in a recently released report.
Payday and car loans are theoretically intended to cover unplanned expenses and specifically mean that borrowers will pay back the loans with their next paycheck; With auto title loans, cars serve as collateral. Interest and fees are often exorbitant, triggering a cycle of new loans and new fees for those who cannot repay quickly.
In one example provided to Texas Appleseed, a South Texas grandmother received a $ 1,800 loan for her car title after losing her job due to COVID-19. In the end, she paid back $ 5,500 on the original loan to a company that received a $ 25 million loan from the Federal Reserve at 3.5% APR.
“Texas stands out from all but a handful because there are no caps on the total fees for payday and auto-title loans,” Texas reported Appleseed. “The result has been a pattern of high APR and rising fees.”
Payday lenders were initially not allowed to dive into the PPP pool. They yelled badly and sued, but eventually dropped lawsuits in favor of a faster avenue: Congress. Last April, politics reported that 28 congressmen wrote to the SBA demanding that “small non-banks” apply for PPP funding. Rep. Lance Gooden, a Republican whose district includes parts of Dallas County and southeastern areas, provided one of the signatures. (Corresponding FollowTheMoney.com(Gooden’s 2020 campaign received $ 71,300 from the payday and title loan industries.) Gooden did not respond to a request for comment.
After all, according to Texas Appleseed, not only were the coffers opened to payday and auto title loan companies, but they were also given preferential treatment. “You were also among the first to receive the funds,” the report said. “Thirteen of the fifteen establishments received the loans within the first month after the program was launched. In fact, many of these loans were granted before it was clear that payday and auto loan operators qualified. ”
In addition to the Fast Pass, these lenders received more money. When most small businesses got an average of $ 567,033 per loan, payday and auto title operators got an average of $ 1.4 million. All in all, nationwide payday and auto title loan companies received more than $ 45 million in PPP funds and continued to offer loans at rates of 200% to 500% during the pandemic.
While most PPP funds were intended for wages, according to the SBA, up to 39% of the loan amount could be used for “ancillary costs” and still be forgivable. That means 39% of the average $ 1.4 million could be borrowed at 200% to 500% APR and not a penny to be paid back.
LoanStar Title Loans, the Texas subsidiary of Wellshire Financial Services LLC, received a $ 25 million loan at 3.15% through the Main Street Lending Program. “The loan to support small and medium-sized businesses has a term of five years and includes no principal payments for two years and no interest payments for one year. Still, the same company gives Texans auto title loans at over 350% APR, ”Texas Appleseed reported.
Todd Frankel at The Washington Post reported that LoanStar and other Wellshire affiliates are “part of a multi-state title loan empire run by Atlanta businessman Rod Aycox,” who was also a major funder of former President Donald Trump.
Federal Cash Advance of Oklahoma, a Texas-based company trading as CashMax, received $ 944,400 in PPP. LoanMe received $ 4.8 million. MoneyLion Inc. looted $ 3.2 million.
Corresponding data Collected by the Texas Office of Consumer Credit, the average APR on an installment loan in 2019 was 490%; Title loans averaged 418%. A total of 18% of borrowers in Texas repossessed cars in 2019 (42,878), paying a total of $ 1.64 billion fees alone.
Cities can regulate these businesses, but even that is difficult. In 2019, Texas Attorney General Ken Paxton flipped a Dallas ordinance when he ruled that “signature” and “small dollar loan” were not the same thing as payday loans, allowing companies the city had to regulate back in the game . Just last month, the Dallas City Council voted unanimously, without the absent Mayor Eric Johnson, to include these types of lenders in the regulations, closing the loophole.
United Way of Metropolitan Dallas has long worked with Texas Appleseed and the City of Dallas to curb predatory payday loan practices. Stephanie Mace, vice president of strong communities at United Way Dallas, says the pandemic has created an increased need for all kinds of financial assistance.
“Employers can also help by giving their employees access to an adequate and secure loan as a benefit to their employees – without risk to their company. Options include CLC and TrueConnect“Said Mace.
State Rep. Diego Bernal of San Antonio has presented House bill 206 The aim is to curb predatory lending at the state level.