The Lone Star State
Texas is the second largest state in the US and the second most populated. The Lone Star State is named after the flag that was used before Texas was part of the Union. The flag had a five pointed gold star on a deep blue background and this iconic symbol still represents this large and prosperous state.
The population of Texas currently stands at around 28.3 million. In 2013 when the unemployment rate stood at 6.4% there was an influx of payday lending companies and today there are over 6,000 lenders operating within the state borders. Economic data, unemployment, diversity in the economy and the average annual wage growth are all factors that have an impact on whether ordinary families use payday loans.
There are also other factors at play such as the total wealth of the state and the poverty level. Each state in the US enforces a different set of regulations for payday lenders but before going into detail about the specific rules that pertain to payday loans in Texas, it is useful to have a look at some of the factors behind the rise in use of short term small dollar loans.
Austin, Houston and Dallas
Austin is the current capital city of Texas but Houston is the largest by size and 4th most populous in the state. Austin is surrounded by rivers and lakes and the city has some of the tallest skyscrapers in the country.
The University of Texas at Austin is an excellent hub for engineering and tech graduates who go on to work in the states defense and technology industries. There are also 85 pharma and bio tech companies located in Austin which is on the Forbes list of the Best Places For Business and Careers.
Houston is the most populated city in Texas and the fourth most populated in the US. The economy of the city is based on diverse industries but most particularly for energy and this is due to the high reserves of oil and gas that are found there. The success of Houston is down to many factors not least of which is the large port which ranks first in the country for international commerce. Houston is one of the wealthiest cities in the state and in one area( Park Row Drive) the average income is $199,805.
Dallas has a population of nearly two million and its wealth was originally based on agriculture. It is a major inland port and the excellent transport links have helped to make this city one of the richest in the state.
When oil was discovered the whole area boomed and Dallas became known for its many millionaires. These days it is a city that continues to expand and it is a strong financial center as well as continuing to be at the heart of the energy industry.
Major employers in Texas
Excellent transport links have helped Texas to thrive as an ideal location for many diverse industries. However, in spite of the domination of the energy industry the largest employer in the state is the University of Texas at Austin. This top public university employs over 21,000 people.
Dell is another important company that helps to drive the economy and this well known tech giant employs over 20,000 people. Shell Deepwater Development is the only energy business to make it in the top five major employers and this famous oil company has over 40,000 employees. In 2014, Texas had the second highest gross state product in the country. The large population and bounty of natural resources has helped to make Texas one of the richest states in the country.
Nevertheless, the fast economic growth has not been good for everyone and whilst Texas is not very high on the list when it comes to the poverty rate, there are still some 17.2% of people who do not earn a living wage.
Taxation and income
Texas is well known for its low taxation rates and there is no state income tax. Property taxes are collected and the sales tax stands at 6.25%. Texas is classified as a tax donor state which means that for every dollar paid in federal income tax, the state receives back $0.94 in benefits.
Texas is one of the states in the US where the regulations for payday loans are very limited.
The average income per capita in Texas is almost on a par with the US average and the figures for 2015, the latest available, show it as $55,653. The state minimum wage is $7.25 per hour but this is barely a living wage.
The current unemployment rate is 3.9% and whilst this is low, many families are working in jobs that only pay the minimum wage. As a result, many low income families now use payday loans whenever a financial crisis arises. Now we can look at the specific regulations that apply to these loans in Texas.
Basic regulations for payday loans
Texas is one of the states where the regulations for loans are very limited and some loan providers have found a way around the rules regarding high rates of interest that are prohibited by the usury laws written into the state constitution.
Some lenders have registered as Credit Access Businesses instead of as a pure lending company and this allows them to charge higher rates instead of sticking to the 10% capped rate. The limited regulations relating to payday loans in Texas means that consumers must be aware of the high costs of borrowing using this type of loan. The regulator for payday loans in Texas is the Texas Office of Consumer Credit Commissioner.
Main terms for payday loans in Texas
The maximum amount of a payday loan is not specified in the regulations and the rules are very complicated because the term of the loan depends upon how much is borrowed. For a loan of up to $100, each $10 amount can be borrowed for up to 1 month and the maximum term is 6 months. In practice this means that a $100 loan would have a term of 6 months but a $50 loan would only run for 5 months and a $30 loan for 3 months and so on.
Loans for over $100 allow $20 to be borrowed per month. Therefore, a loan of $120 would be repayable after 6 months but the 6 month loan period limit means that this also would apply to any amount above that figure. So. in essence no loan can run for more than 6 months.
There is no upper limit to the amount that can be borrowed but each lender will have their own maximum. It is also important to realize that the more you borrow, the more you will pay out in charges. The regulations do not impose strict limits to interest rates so a payday loan in Texas is a costly way to borrow.
Interest rates on Texas payday loans
The maximum interest rate that a lender can charge is 84.43% APR for a 30 day loan of $350 and up to 569.92% APR for a $100 loan over 7 days. This means that the charge for 14 day loan of $100 works out at $11.87 using a rate of 309.47% APR.
All annual percentage rates must include financing fees and in Texas there is no maximum to the charges. The loan agreement will state all the charges that are applicable and due to the complicated structure of the loan regulations, you should read the contract very carefully. Under Texas Law each payday loan has acquisition charges (start up fee) and these are listed below. A loan of less than $30 is charged at $1 for each $5 borrowed.
A loan between $31 and $100 has a 10% charge of the amount borrowed and a handling charge of $3 per month for loans less than $35 and $3,50 per month for loans between $36 and $70 then $4 per month for loans between $71 and $100. Loans that are more than $100 are charged $10 plus a handling charge of $4 per $100 borrowed.
These very complex rules make it essential that you scrutinize the loan contract extremely carefully as it is almost impossible to work out from these regulations exactly how much will be charged in fees.
Limits of debt
There are no limits to the number of loans that can be taken out at any one time. Additionally, Texas law does not specify a cooling off period and there is no regulation against rollover loans although there is nothing stated in the rules specifically allowing renewals.
Lenders are not obliged to create a repayment agreement if the loan is not repaid.
Limits of collection fees
Late repayments will attract a fee of 5% of the payment amount or $7,50 whichever sum is the greater amount. If there is not enough money in your checking account to make the payment, the lender is allowed to charge $30 as a non sufficient funds fee and can ask the court to award fees for any other costs that have been charged by the bank.
Important information for payday loan customers
Very high interest rates are charged by direct lenders in Texas but there is also another problem when you apply for a payday loan in this state. Texas is awash with brokers who offer to connect you to a payday lender but in doing so they charge fees for this service. Using one of these brokers is only going to add to the costs of borrowing so always look for an ethical and reputable lender that adheres to the regulations.
There are some cities in Texas like Dallas and Houston where legislators are intending to impose their own ordinances for payday loans so all of the above regulations may change. The complicated nature of regulations for payday loans in Texas makes them a nightmare to navigate. So, in order to avoid falling prey to very high charges, it would be better to look at all of the alternatives and only use a payday loan as a last resort.
Big business in Texas
Texas is one of the states that has very little in the way of regulation for payday loans. The state operates a ‘hands off’ approach to the big businesses making large profits from vulnerable people who need small dollar loans for a short period of time.
In the state of Texas you may be charged by brokers for introducing you to a payday lender.
Lawmakers in the state have always been pro-business and there are no imminent plans to change the regulations and put limits on interest rates or charges. Short term payday loans have become a necessary financial product but many other states have managed to keep the loans available without making it inevitable that a consumer falls into serious debt.
Lenders in Texas
In the Yellow Pages there are 6086 lenders listed as providers of payday loans. This is the highest figure for any state. Even if you take into account the size and population of Texas, this is a staggering amount of businesses that are charging some of the highest interest rates in the country.
Who uses payday loans?
Between 2015 and 2016, 6.1% of the adults in Texas took out a payday loan and the average amount borrowed was $389. People on low incomes were the group most likely to use loans and those aged between 25 to 29 also took out the highest percentage of loans. 43% of borrowers were fully employed with 12% in part time work and 5% retired. More females took out loans than males and 52% of borrowers were white.
Regulator for payday loans in Texas
The regulator for payday loans in Texas is the Texas Office of Consumer Credit Commissioner and loans are governed under the Texas Finance Code. Licenses are granted for a Credit Access Business and this allows businesses to broker loans between the borrower and a third party lender. Because of the nature of the regulations, lenders are not required to keep in line with the usury laws that are in the Texas Constitution and so are free to offer loans with three digit rates of interest.
Online lenders are free to operate in Texas and are also registered as Credit Access Businesses. Consumers can ask for more information about payday loans or file a complaint by contacting the regulator at the following address:
Office of Consumer Credit Commissioner
Finance Commission Building
2601 N Lamar Blvd
Assistance programs in Texas
If you are finding it difficult to manage, there are alternatives to taking out a payday loan. The state has several schemes that provide much needed assistance to families who are living on low incomes.
The North Texas Food Bank, the Texas Medicaid Program and the Temporary Assistance For Needy Families all offer help when times are hard. You can also apply for help from the Supplemental Nutrition Assistance Program if you are finding it hard to cope with debt.
All the US states have their own regulations relating to payday loans and the above rules apply only to Texas. The regulations are complicated so it is very important to make sure that the total cost of a loan is clearly spelled out before you commit to and sign a binding agreement.