Friday, December 17, 1999
AUSTIN - Texas Attorney General John Cornyn announced today the filing of a permanent injunction and compromise settlement with "payday" lender Cash Today. According to the agreement, the company, which owns operations throughout the state, will pay $1 million in restitution to Texas consumers and end their loan business known as "deferred deposit" or "payday lending."
"This kind of abusive payday lending is illegal in Texas and those companies who continue this practice will face serious consequences," said Attorney General Cornyn.
Payday loans are generally short-term loans made by unlicensed lenders for up to several hundred dollars at extremely high interest rates, ranging from 650 percent to over 1000 percent annually. Texas law prohibits businesses from loaning money to consumers at an interest rate higher than 10 percent without a license. Payday lenders usually lend to low-income consumers who face short-term money problems, live paycheck-to-paycheck or do not have access to mainstream forms of credit.
On May 12, the Attorney General's office and the Office of Consumer Credit Commissioner filed suit in Travis County District Court alleging that the Cash Today companies were liable for usury, unauthorized lending, and unfair debt collection practices among other misconduct in violation of the Texas Finance Code, Deceptive Trade Practices Act, and the Texas Debt Collection Act.
Cash Today lured customers with an advertisement offering cash. The customers would then write checks to the payday lender for approximately 33 percent over the amount loaned, and the lender would agree to hold the checks for two weeks. At the end of two weeks, the customer had the choice of either letting their checks be cashed or paying another $33 per $100 loaned to have the checks held for another two weeks. On an annual basis this charge, 33% every 2 weeks, amounts to 860% interest.
The true cost of this "easy" credit is that consumers find themselves in a trap of paying only interest, and not paying down the principal. The fear of having their checks deposited, when there is not enough money in the bank to cover those checks, often drives desperate consumers into a cycle of borrowing even more money, just to maintain interest payments. This often results in bank fees, other bounced checks, charges from the bounced check recipients, and listing on Telecheck or other check verification services.
Additionally, Cash Today required its customers to sign a promise not to file bankruptcy, which is a right guaranteed by state and federal laws. Cash Today further required its customers to promise that if they did file bankruptcy, they would not list Cash Today as a creditor - which would require them to commit perjury.
Cash Today and its affiliates operate approximately 60 stores around Texas under various names including "Cash Today," "Cash Now," "Cash One," "Cash Box," "Cash in Minutes," "Cash Boys," "Cash Club Sales of Texas," and "Title Mart."
This lawsuit was filed at the request of Commissioner Leslie Pettijohn and was handled by Assistant Attorney General Ann Hartley of the Financial Litigation Division. Assistant Attorneys General Brad Schuelke and Gary Norton of the Consumer Protection Division assisted in this case. At the request of Commissioner Pettijohn, two more payday lenders, EZ Cash and Quick Cash, were also sued earlier this year. Their trial is set for February 14, 2000 in Hidalgo County District Court.
Usurious contracts are not enforceable under Texas law. Consumers seeking a cash advance should look to much cheaper and legal alternatives -- credit card advances, credit union loans, licensed signature loan companies, or borrow from family or friends -- avoiding this perpetual debt cycle. Consumers who feel they have been charged too much for a loan should consider consulting an attorney and may file a consumer complaint with the Attorney General's office by calling 1-800-621-0508 and requesting a complaint form or downloading the form from the web site at www.oag.state.tx.us.
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