The Problems

Drain on Our Communities

  • High-cost payday and auto title loans shrink paychecks and drain public and private dollars meant for basic needs. The demand for assistance from borrowers in financial hardship due to payday and auto title debt is taxing local social services providers.
  • Inflated fees on payday and auto title loans undermine local economies—this is money not spent in the community on goods and services. Bankruptcies, loss of bank accounts, and delinquencies in paying bills further contribute to a drain on the local economy.
  • For every Texan employed by payday and auto title businesses, many more families are struggling, caught in a cycle of debt. The high recurring fees and faulty loan structure create increased financial hardship for Texas families. A concentration of payday and auto title businesses in lower-income communities discourages other types of economic development. 31 cities, including Dallas, Austin, San Antonio, Amarillo, and Midland have passed ordinances to address the cycle of debt.  16 cities have passed zoning ordinances to limit the clustering of these storefronts in city neighborhoods.


Cycle of Debt

Payday and auto title loans help in the short-term, but create a long-term debt trap.

Screen Shot 2013-01-22 at 7.27.38 PM

  • Refinances made up 61% of all single payment loan transactions in 2014 
  • After 5 loan rollovers, a borrower has paid $690 in fees and still owes the entire $500 loan.
  • This high-cost debt cycle often drives borrowers to social service agencies to meet basic needs.
  • In 2014, Texas auto title businesses repossessed 847 cars every week.

What about installment loans?

Installment loans in Texas have traditionally been governed by Chapter 342 of the Texas Finance Code, which includes rates designed for subprime borrowers and provisions to accommodate auto title lending. For example, a $1,000 six-month loan costs 80-90% APR (annual percentage rate). [1] These loans include rate and fee caps as well as requirements to assess the borrowers ability to repay among other protections, yet with over 3,000 Texas locations (as of December 2015) these models are still very profitable to lenders (locations with an active license as of June 2014).

To avoid Chapter 342’s limits on rates and fees, payday and auto title businesses have created new installment products that get around the limits through a legal scheme enabling unlimited fee charges.[2] The result is installment loan products with APRs of 500% and higher.

Screen Shot 2013-01-22 at 9.34.17 PM
  • In this example, based on actual market products, an installment payday loan is more than seven times the cost of a traditional subprime installment loan under 342 F.
  • Borrowers often pay even more in fees—in 2014, borrowers who refinanced a payday installment loan could end up paying over $3,000 to repay a $500 loan.


[1] This rate structure is based on the rate structure in Chapter 342 Subchapter F of the Texas Finance Code (342 F) using a $20 origination fee.
[2] Instead of operating as consumer lenders, payday and auto title businesses, including those offering installment loans, operate as Credits Services Organizations, charging unlimited fees to arrange and guarantee consumer loans.


Auto title lending risks repossession of a major family asset

44,052 Texas families lost a car to an auto title business in 2014 alone. 40% of all auto title borrowers in every quarter cannot pay the loan back and must pay repeated high refinance fees.

  • Auto title loans are typically single payment loans secured by title to the family vehicle owned free and clear.
  • These loans are illegal in half of the states because of the excessive interest and fee charges.
  • In Texas, these loans average fee charges of 21% of the advance amount every 30 days. The average loan fee on a one-month $4,000 auto title loan in Texas is around $840.
  • Failure to repay an auto title loan can result in repossession. Losing a vehicle severely hampers borrowers’ ability to remain employed.
  • Auto title loans are typically given without any regard for the borrower’s ability to repay the loan. Lenders are protected should the borrower default because the loan is secured by a car title.