Debtors Prison in Texas

Huffington Post has an article out on people being thrown in jail in Texas for failing to repay predatory loans. It doesn't happen a lot but that it happens at all is a sad commentary on our judicial system. Here is how it works. You have a past due utility bill and the power company is threatening to shut off your electricity. You go to a store front lender and take out a three hundred dollar loan for two weeks. You write a post dated check to cover the fee, principle, and interest. Two weeks go by and you don't have the money. You roll the loan over for another fee. You continue this process for a few months and find yourself several thousand dollars in debt. The fees are exorbitant and this happens a lot. Finally the lender tries to cash the check. The money isn't in your account so now it's a hot check. The lender files a complaint with the local constable and you find yourself in court. People are losing their homes over this and if you don't think that happens a lot ask the people at Samaritan Inn. They turn people away in droves for lack of space. Many are single mothers living with their children in their cars, if they still have a car. There is often a predatory loan in the story. OK, it was a bad idea to get started down this road but desperate people do desperate things. Some practices in this business are abusive and should be illegal but aren't under Texas law, starting with the fees. Effective interest rates often exceed 500%. They avoid usury laws because technically the fee isn't interest, it is a charge for arranging the loan. Also the loan agreements commonly don't allow partial payments, the entire loan must be repaid when due. Often the only way the borrower can do that is to roll the loan over. That's how they snowball so quickly. Dallas, Garland, and a number of other Texas cities have passed a model ordinance regulating these lenders. Richardson has a specific use permit requirement that has kept them from proliferating. But they operate freely in much of the metroplex. There are dozens of them in Plano. It is really a state wide issue. Regulate them here, they just move over there. Every odd numbered year a bill is filed in the Texas Legislature to curb some of the worst of the practices and the incoming legislature will be no exception. Lynne and I will be in Austin in March with a group from our church for Catholic Advocacy Day. We will break up into small groups, put on tee shirts, and call on legislators to ask for support on this and several other bills. It's an uphill battle though. These lenders are making a lot of money and they are a powerful lobby. Several charities, including United Way, Dallas Catholic Charities, and some local St. Vincent DePaul Conferences, have also begun advocating for alternative lending sources. It's difficult because these are small loans with high transaction costs to people who don't have very good credit. They are making progress and a few reputable lenders have set aside funds for this purpose. Some employers will make payroll advances at no interest. Most charities that deal with this require financial counseling. One reason people fall into these traps is they don't realize what's happening and don't know how to avoid the danger. As for jailing people for failing to repay these loans, that shouldn't be allowed to happen. This isn't the England of Charles Dickens' day. We did away with debtors prison a long time ago, or did we?