The rest of the borrowers renewed the loan at least once, adding costs. The loan includes more than $1,000 in fees and interest. KERA News Just over half of the customers who took out a $600 multi-payment auto-title loan from LoanStar pay the loan on time as scheduled. The high cost of small, short-term loans from payday and title loan companies balloon when borrowers aren’t able to pay back the loan on time.Īccording to state-mandated disclosure documents, about 3 of every 10 LoanMe customers don’t pay off those $600 payday loans as planned, launching another round of fees and interest when the loans are refinanced.
LoanMe, which is based in Anaheim, Calif., did not reply to KERA’s request for comment. That means it takes $1,600 to pay back a $600 loan, working out to an APRof 510%. If a borrower in Texas takes out a $600 multi-payment payday loan from the company LoanMe, they’ll pay nearly $1,000 in fees and interest. If the loans to LoanMe aren’t forgiven entirely, the company will pay an interest rate of 1%. The company LoanMe received more than $4.8 million in PPP loans, according to the Texas Appleseed report. For comparison, the average interest rate for a new credit card is around 18%, according to WalletHub. There is no cap on fees charged by companies that broker payday and title loans for Texas borrowers, and it’s not uncommon for payday loans to carry fees more than 500% the annual percentage rate (APR). “This was a pretty concerning finding,” Baddour said. And most received their loans quickly after the program was authorized, at the same time that many small businesses struggled to access the funds, particularly Black- and Latino-owned firms. Texas payday and title loan operations’ PPP loans were also larger, on average, than the typical Texas small business, according to the report. Otherwise, PPP loans carry a 1% interest rate. Those loans are forgivable if companies comply with a handful of conditions, including that they keep employees on the payroll for a couple months after receiving the loans. “Why should taxpayers…subsidize these businesses that are lending at exorbitant prices, and that so often undermine the financial well-being of families?” said Baddour.įifteen companies that operate in Texas selling small, short-term loans with extremely high fees borrowed a combined $20 million under the PPP last year. The Small Business Administration originally excluded lenders in their list of businesses that were ineligible for the federal pandemic business loans - a list that included strip clubs and other adult entertainment companies, as well as lobbyists and companies with “pyramid sale distribution plans” - but those exclusions were immediately challenged in court. It was adopted to help families and small businesses weather this incredible financial crisis,” Baddour said. “The CARES Act was not adopted to subsidize predatory lending businesses. They often trap their mostly low-income clientele in debt that can take months or years to pull out of.
Payday and auto-title lenders have the opposite effect on borrowers, said Ann Baddour, director of Texas Appleseed’s Fair Financial Services Project. The programs, authorized by Congress last March as part of the CARES Act, were intended to help stabilize small businesses as the coronavirus sent the economy into a tailspin.
According to a new report from the consumer watchdog group Texas Appleseed, companies that sell Texans short-term loans with huge fees borrowed more than $45 million in federal pandemic business loans through the Paycheck Protection Program (PPP) and the Main Street Lending Program.
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