Real vs. Fake News | Texans for Financial Choice

Fake News: Millions of Texas short-term lending consumers are demanding short-term lending reform.

Real News: Short-Term Lending Consumers value and appreciate the flexibility and choice the industry provides in cases of financial emergency.

The OCCC is required by law to track complaints and enforcement actions against Credit Access Businesses (CABs). Complaints against CABs are the lowest among all businesses regulated by the OCCC – one per every 21,000 transactions.

This is a manufactured crisis created by politicians, liberal activists, and the mainstream media intent on eliminating private sector credit options for underbanked Texans.

Fake News: The average short-term loan costs are more than 400 percent.

Real News: These loans are designed to be less than one year and in many cases, less than six months.

The reality is most private sector, short-term credit providers charge $15 to $20 per $100 borrowed. You would have to roll over and refinance your loan 26 times to reach an annual percentage rate of 400 percent. In reality, 71% of single payment loans are paid when due or refinanced once, while 92% of multiple payment loans are paid when due.

These are scare tactics designed to confuse the general public who have no need for these loans.

The OCCC requires that a CAB provide a disclosure before and after the loan that outlines repayment statistics, costs for other forms of credit, and the OCCC consumer complaint hotline. According to the OCCC, a majority of short-term lending customers pay their loans off as scheduled.

Fake News: Short-term lenders attempt to “trap” people in a cycle of debt that they are unable to escape.

Real News: Short-term lending associations often have a series of best practices designed to work with people that are having difficulty paying off their loans.

The OCCC tracks all short-term loans originated in Texas. According to the OCCC a majority of short-term lending customers pay off their loans as scheduled. It is a statistical outlier when a consumer rolls over their loans more than 6-7 times.

Fake News: Short-term enders are generating massive profits off people in financial emergencies.

Real News: Contrary to popular belief, Credit Access Businesses and short-term credit providers generally make about one percent of revenues when you factor in default rates.

Public financial data shows the average Starbucks makes more than six times the profits of the average short-term lender. Wells Fargo, Citibank, Goldman Sachs, and PNC have net profit margins above 24%. Comparatively, the top three publicly traded short-term lending companies have single digit returns on investment.

Fake News: Eliminating private sector, short-term credit options will eliminate demand and save underbanked Texans millions of dollars in costs.

Real News: Plans like this not only limit access to credit, but they also drive up the cost of loans for those who already have few credit options.

According to the Federal Reserve Bank of New York, when Georgia and North Carolina banned short-term loans, households bounced more checks (over 1000 percent APR), complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter Seven bankruptcy protection at a much higher rate than those states without restrictions.¹

After Austin and Dallas passed municipal ordinances, storefront lending decreased around 13%, but more expensive online short-term lending increased 19%. ² According to the OCCC, municipal ordinances did nothing to reduce the demand or costs of credit throughout Texas.

¹ “Payday Holiday: How Households Fare after Payday Credit Bans – February 2008 https://www.newyorkfed.org/research/staff_reports/sr309.html

² Data provided by the Texas Office of Consumer Credit Commissioner

Fake News: Activists claim that community loan programs can fill the demand for short-term credit.

Real News: Community and charitable lending programs, while encouraging and laudable ideas, can’t come close to meeting consumer demand in Texas.

The community loan center program concentrated in South and East Texas has struggled to loan $38 million in five years.

The reality is socialist activists like Elizabeth Warren, Bernie Sanders, and Alexandria Ocasio-Cortez would prefer that the government provide tax payer subsidized short-term lending through the U.S. Postal Service rather than private sector credit options.

Fake News: Short-Term Credit Providers are largely unregulated and need to be reigned in.

Real News: Short-term credit providers in Texas are regulated by many levels of government.

They are forced to comply with the Consumer Financial Protection Bureau’s 1,300 pages of regulations. In order to obtain a CAB license, they must comply with the Texas OCCC regulatory requirements. (http://occc.texas.gov/industry/cab)

Further caps, regulations, and burdensome requirements will force most short-term lenders to restrict credit access or simply shut down its operations.