AUSTIN, Texas–Although payday lending was largely outlawed in Texas in 2005, a loophole has allowed “credit services organizations” to continue to operate, and a new survey is offering some insights into the Texans who are utilizing such services.
The study, compiled and released by the League of Women Voters in Texas, examined payday and auto lending in Texas at the “credit services organizations,” which have no restrictions on administrative fees for arranging loans.
According to the League of Women Voters and the Cornerstone CU League, which first reported the findings, in 2013 two-thirds of Texans who had ever used a payday loan were younger than 45, while the majority of those who had ever used an auto title loan were 45 and older. Two-thirds of borrowers lived in metropolitan areas. African American and Hispanic Texans used payday (70%) and auto title (62%) loans at rates disproportionately high compared to their share of the state's population (51%). One-third of all payday and auto title loan borrowers had obtained some college education. Half lived in households with annual incomes between $15,000 and $50,000, and two-thirds were employed. One in six payday and title loan borrowers in Texas was disabled.
The study found that most payday and auto title loan consumers use small-dollar loans to overcome financial shortfalls whenever money is tight for basic living expenses, unexpected or emergency events, and special occasions. The reasons cited for choosing payday and title loans included ease of application and qualification, accessibility at any time, nearby availability, and that these lenders are more friendly in comparison to mainstream lenders. Borrowers said they believe a payday or title loan to be the best alternative to the disruption and financial penalties for shutoff utilities or bounced checks.
Credit unions should also note that interviews conducted as part of the study found that payday and title loan consumers are overwhelmingly satisfied with their loan experience, primarily because of the convenience of obtaining the loan. A majority of payday loan borrowers favored no limitation on the number of loans they can get per year. Most auto title loan borrowers reported that the terms of the loan were clear. Without the loans, most payday and title loan borrowers would cut back on basic expenses, delay paying bills, borrow from family or friends, and/or sell or pawn personal possessions.
In August 2014, the Texas Office of Consumer Credit Commissioner reported that 207 companies were licensed as credit access businesses in Texas, operating 3,296 storefronts in 2,232 cities and towns. The Office said 1.7 million borrowers in Texas took out over 2.7 million new payday and auto title loans in 2014.