Debt collectors aren’t supposed to be able to use the threat of criminal prosecution to intimidate people into paying up, but new analysis shows that Texas’ payday lenders routinely use courts to put the screws to borrowers.
Even though the tactic violates federal law, the Texas Constitution, and a 2012 law specifically designed to end the practice, prosecutors filed or threatened to file charges in nearly 1,600 separate debt cases between the beginning of 2012 and the spring of 2014, according to an analysis by the group Texas Appleseed. The report identifies 13 different payday lending companies that have used the criminal justice systems of 8 different counties to further their collections efforts in 1,576 cases. The new numbers, which Appleseed sent in a letter to the Consumer Financial Protection Bureau (CFPB) and other officials, follow a 2013 investigation by the Texas Observer that uncovered more than 1,700 similar violations of borrowers’ rights in just three Texas cities.
Companies typically ask a judge or prosecutor to charge a borrower with writing a bad check, and “the threat of imprisonment is a powerful borrower intimidation and debt collection tactic,” the letter notes. Borrowers made payments following the threat of prosecution in anywhere from 10 percent to 45 percent of the cases Appleseed found, depending on the jurisdiction.
Failure to repay a debt is a civil violation, not a criminal one, and federal law prohibits the use of criminal charges as a tool to force borrowers to repay what they owe. But in Texas, criminal charges often come into play “even after the borrower has paid refinance fees in excess of the original loan amount borrowed,” Appleseed writes. Six people served jail time as a result of these charges, and borrowers made at least $160,000 in payments after being threatened with jail — a low-end estimate, according to Appleseed, since the data they requested from Texas institutions would not include separate payments made “outside of the criminal process due to the intimidation that resulted from the criminal complaint.”
Appleseed’s findings illustrate a collision of two different types of formal, legalistic exploitation of the economic underclass. The first is payday lending as a business practice. Low-income families that have no access to basic banking services turn to predatory loans when they need to cover a temporary imbalance of expenses and income. Many of these customers navigate the terms of these loans carefully and avoid falling into a cycle of permanently extending and refinancing the initial loan, but the industry makes most of its profits from the minority of borrowers who never catch up and end up spending thousands of dollars on fees tied to a loan of just a few hundred dollars. The industry siphons about $3 billion per year out of the poorest communities in America. It is facing increased scrutiny of its operations from the CFPB and others, but the industry has been a nimble opponent for state lawmakers who have tried to crack down on predatory lending in the past.
Secondly, the Appleseed figures are another example of how the legal and economic system is criminalizing poverty. It is unconstitutional to jail people for being poor, but that doesn’t always stop courts from swapping out fines for time behind bars when people can’t pay. The American Civil Liberties Union alleges that courts in Colorado, Ohio, Louisiana, Michigan, Washington, and Georgia have effectively reinstated the “debtors prisons” that went out of style in the 19th century. The privatization of probation services has added new fees and charges that can often land people in jail even after they’ve paid their debt to society. In June, a Pennsylvania mother died in a cell while serving a weekend in jail to resolve years of outstanding fines she had no ability to repay.