Posted on July 25, 2012 at 10:00 PM
Updated today at 10:32 PM
NEWS 8 INVESTIGATES
DALLAS â" A tough new ordinance designed to protect Dallas consumers may actually be hurting them.
News 8 has learned one short-term lender is forcing some of its customers to move their loans outside of the city, where lending practices can send customers spiraling into debt.
The nightmare stories are as old as the loan business itself.
Short-term "payday" and "auto title" loans have interest rates of up to 500 percent, and consumers can easily get caught in the quicksand of debt by an industry with a bad reputation.
"This is exploitation masquerading as commerce," said Gerald Britt of the non-profit charity City Square. Britt says payday loan debt is one of the major reasons for financial despair in the city.
He said it is typified by low-income residents taking out high-interest loans they can never pay back.
"It gets them ensnared in the cycle of debt that really not only makes it difficult for themselves to get out of poverty, it pushes them deeper into poverty, making it difficult for them to provide for their families, making it difficult for them to pay their other bills," Britt said.
Last summer, acting on thousands of complaints, the Dallas City Council unanimously passed what could be the toughest restrictions in the nation. The new rules ensure that customers can't borrow more than they can afford to pay back, and it caps the number of times they are allowed to renew their loan.
It's an ordinance designed to help one local woman whose identity we agreed to shield. "They just try to suck the money out of you â" that's the only thing I can see," the customer said.
One year ago, TitleMax in Dallas loaned her $2,000 in exchange for the title to her car that was worth about the same amount.
Over the past year, the woman has paid about $250 a month for a current total of more than $3,000. Yet she still owes more than $1,400.
If she continues to pay $250 a month, it will take her nearly two more years â" a total of $9,000 â" to pay off her $2,000 loan.
When she first signed up for the loan, the interest rate was a staggering 258 percent.
"She told me the 258 was straight interest on a $2,000 loan; none of that would go to pay off the principal," the customer said. "That's when I realized I was locked into something that I shouldn't have ever gotten locked in."
Two weeks ago, she got another shock. TitleMax told her it was moving all of its existing loans to neighboring cities following the enactment of the tough new restrictions in Dallas.
According to the paperwork provided to the customer that she says she was forced to sign, her new interest rate at a branch outside the city will nearly double to at least 310 percent. She fears she will now default on her loan and lose her car.
"I don't know what I'll do. I don't have money to buy another car," the customer said.
TitleMax Branch Manager Eduardo Lobo confirms the transfer of loans to News 8. "Our customers will have to go to another branch,â he said. "The company, by law, can't take payments for our customers in the City of Dallas."
Lobo said the assertion that interest rates for his customers may nearly double is not correct. "All our branches have the same interest rate. All our customers' interest rates will remain the same," he said.
Dallas City Attorney Tom Perkins said his office is concerned that businesses might be moving out of town rather than conform to consumer protections.
"We are looking at the issues associated with this transaction along with some of the practices by this company," Perkins said. âWe are looking at whatever options the city has available to it at this point to address this issue."
The city's new regulations are also being challenged in court, but Perkins said that suit will be vigorously challenged.
A campaign is underway among Dallas area charitable non-profits to convince neighboring cities to adopt the tough new consumer protection standards already in effect in Dallas and Austin.