Payday loan companies in Texas are illegally using law enforcement and criminal courts to collect their debts — according to a nonprofit called Texas Appleseed. The group filed a complaint this week with state regulators over the practice.
“No person shall ever be imprisoned for debt,” according to Section 18 of the Texas Bill of Rights in the state constitution. Ann Baddour, Director, Fair Financial Services Project at Texas Appleseed said that’s not what’s happening.
“We documented over 1,500 instances where payday loan businesses had used District Attorneys, County Attorneys, JP courts as a way to try to collect on bad debts, but we believe what we uncovered is just the tip of the iceberg," said Baddour.
She said it had become common practice for payday loan shops to get their customers to write a check they knew would bounce, if cashed. The bad check counted as security for the loan, but that didn’t mean the customer was breaking the law and subject to arrest for hot check writing.
“As it stands, the bad check and theft by check laws have specific exemptions for postdated checks, because that’s really considered a credit transaction. They know you don’t have the money. So they are taking this check knowing that you don’t have the funds to cover it,” said Baddour.
However, what the group’s investigation discovered was an increasing number of payday lenders that were bringing criminal charges against customers, for writing those same “bad” checks, in order to collect debts.
She said she was hopeful Appleseed’s complaint would prompt state regulators to take action to end this unlawful practice. She said the group also hoped that the coming legislative session would see the passage of stronger restrictions on the payday loan industry.
