Pay day lending practices prey on the poor, disabled

Alberto Lugo Jr. stands in front of several of the loan companies he borrowed money from indicating "stop" in sign language. The strip center on Ayers street is peppered with payday and auto title lenders. Mary Cottingham, South Texas Catholic

Alberto Lugo, Jr. was born deaf and relies on government assistance to take care of his wife and three sons. Sometimes this assistance is not enough to take care of his family's needs and Lugo has fallen prey to unscrupulous lenders who have no problem in taking advantage of his disadvantage.

Lugo is not alone. Almost every client of Catholic Charities"' Representative Payee Program has fallen prey to payday and auto title lenders who find the disadvantaged and the disabled as easy marks.

Comments... from caseworkers attending a payday-lending workshop hosted by Catholic Charities earlier in the year: They are in every block They don't know, don't ask, don't care People go from one lender to another lender, refer them to lender across the street No installment plans, need to pay whole amount Borrowed $500 had to pay $900 Month after month, after month Veteran lost car Client had five payday loans Food is last on their list Pawnshops are also an issue Payday ads are very enticing Many people don't know about programs that can help Some use loans for non-essential items like take out Bad credit scores lead people to Payday lenders Many people do not know how to manage their budgets Some people make bad choices but others simply don't get enough Has become lure to get someone to come in Payday workers get bonuses on number of people they bring in, loans they make Payday lenders use many marketing gimmicks Sixty percent of clients had six payday loans Rent to own is another issue It's a continuous rollover, they borrow from one to pay another and so on

According to the Texas Catholic Conference, "payday loans are marketed as short-term small cash advances for unexpected, discrete costs. Typically it is a two-week loan term and requires a postdated check or electronic access to a debit account as collateral. An auto title loan has a similar concept. However, it is [the borrower's] car title that serves as collateral. If a borrower defaults, meaning if he fails to pay off the loan at the agreed length of time, the loan company will take the vehicle."

Research suggests these loans are set up to fail. Due to the added fees and short period of time, repayment becomes difficult and a cycle of debt is inevitable. In the end, payday loans create greater financial burdens and hurt rather than help consumers, the Texas Catholic Conference points out a special Web site it has on payday lending.

"People who enter into these loans are disabled, on limited income and in desperate situations," said Marco Crawford, an attorney who is vice chancellor for the Diocese of Corpus Christi. "The problem is rampant."

Lugo, who is still paying on two loans, borrowed to pay earlier loans and has not been able to clear off he loans. He said loan company representatives routinely come to his home to collect and threaten to take his valuables and take him to court if he does not pay.

He also had an auto title loan and nearly lost his car when he missed a payment. The loan company picked up his car and was getting ready to sell it when Lugo was able to borrow from a family member to pay the loan, which he said was for $2,000 and he ended up paying $4,000 all told.

His story is not unusual.

The Representative Payee Program helps people who are unable to manage their financial affairs. They help them to pay bills, make budgets, etc. Most of their clients have payday loans and most secure payday loans to pay off their original payday loan.

Crawford helped one client who had nine loans, eight of which were recurring loans used to pay previous loans. After meeting with her for two minutes Crawford could tell the 33-year-old woman had the mental capacity of a child. She was paying 564 percent interest on her latest loan.

She was born with cerebral palsy and brain damage. She has a number of mental disorders. She is on 11 medications. The Federal government had declared her mentally disabled.

"She could not legally enter into a contract under Texas law," Crawford said. "She is unable to grasp what she is doing. She was not capable of entering into any legal agreement."

After discussions with the lender"'s attorney, the loan company agreed to waive the payment of the loan.

Crawford is working with two other clients of the Representative Payee Program who find themselves in similar situations. All of their clients are disabled and receiving Social security, about $700 per month.

"The assumption is that they (borrowers) should read agreements but the agreements are lengthy with tons of small print," Crawford said. "Most people do not understand them."

Lugo said that when he went in to get a loan the loan company did not have an interpreter that could explain the loan to him in sign language. "They just gave me the papers and told me to sign here. I signed and that was it. No explanation. They didn"'t explain anything to me. They didn't take time to communicate with me by writing back and forth and then I saw the interest was high but they just told me 'sign'," Lugo said.

Crawford said it was difficult for him as an attorney to understand the contract. The average person does not know what they are getting into.

"I think the interest rates are unethical. They are questionable but on top of that they are preying on individuals that are mentally disabled. It"'s reprehensible. It's a serious problem," Crawford said.

Unfortunately, while the loans are unethical they are legal.

While Crawford thinks the situation is reprehensible, Corpus Christi mayor Nelda Martinez uses much stronger language to describe the practice.

"I believe it is a criminal act... Why do all bankers have to follow regulations but not payday lenders?" -- Mayor Nelda Martinez

"I believe it is a criminal act," the mayor said at a meeting recently held in Corpus Christi to discuss the problem. "Why do all bankers have to follow regulations but not payday lenders?"

The mayor said the practice of payday and title lenders "ravages the city" and "is a negative economic multiplier."

Some 18 cities in Texas have already adopted ordinances regulating payday lending and Mayor Martinez said she plans to have Corpus Christi join the group. She said now that the city council has dealt with other pressing priorities it would turn its attention to this issue.

"Unfortunately, ordinances are limited to within city limits and the authority of municipalities in these cases is limited," Texas Catholic Conference executive director Jeff Patterson said. "True reform affecting all Texans is only possible when undertaken by the Texas Legislature."

State Representative Todd Hunter who joined the mayor-as well as Bishop Michael Mulvey-at the meeting pledged support for reform of this issue at the state level.

Thus far, "attempts to reform the payday and auto title practices during the last session of the Texas Legislature crumbled in the face of an expensive lobby effort by the payday lenders," Patterson said.

The Texas Catholic Conference, the public policy arm of Texas bishops, will continue to urge the Legislature to adopt reform legislation.

Lugo said he would never recommend a payday loan to anyone. "The interest is so high and you never finish paying it off," he said. "It"'s not a good idea."

If one of his sons asked if he should borrow from a payday lender he would tell them "no".

"Never, never, never go borrow money from them," Lugo said. "I know I will never do it again. I learned my lesson."

For more information on Payday Lending visit the special Texas Catholic Conference Web site txcatholic-fairlending.org.

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Church Teaching

Basic Christian principles require the community to provide protection for the poor and vulnerable. Parishes in the Diocese of Corpus Christi and Catholic Charities witness the high cost of being poor every day as they assist families forced into alarmingly high debt when they take out a payday or auto title loans to cover an unexpected expense.

The teachings of the Catholic faith has many warnings about usury and exploitation of people. Lending practices that, intentionally or unintentionally, take unfair advantage of one's desperate circumstances are unjust. Catholic Social Teaching demands respect for the dignity of persons, preferential concern for the poor and vulnerable, and the pursuit of the common good. These principles coupled with the Church's teaching on economic justice animate the Church's questioning of current payday lending practices.

"I hope that these institutions may intensify their commitment alongside the victims of usury, a dramatic social ill. When a family has nothing to eat, because it has to make payments to usurers, this is not Christian, it is not human! This dramatic scourge in our society harms the inviolable dignity of the human person."

-Pope Francis (speaking in the National Council of Anti-Usury Foundations)

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