Analysis by the group Texas Appleseed has revealed that payday lenders in Texas are routinely using courts to intimidate borrowers into paying their debts, despite the fact that this practice is illegal. The analysis found that prosecutors filed or threatened to file charges in nearly 1,600 separate debt cases between 2012 and 2014. This follows a 2013 investigation by the Texas Observer which uncovered more than 1,700 similar violations of borrowers’ rights in three Texas cities.
The letter sent to the Consumer Financial Protection Bureau (CFPB) and other officials noted that the companies typically ask a judge or prosecutor to charge a borrower with writing a bad check, and this threat of imprisonment is used as a powerful debt collection tactic. Appleseed’s analysis showed that borrowers made payments following the threat of prosecution in 10-45% of the cases, depending on the jurisdiction.
Failure to repay a debt is a civil violation, not a criminal one, but in Texas, criminal charges are often used to force borrowers to pay back what they owe. According to Appleseed, six people were even jailed as a result of such charges, and borrowers paid at least $160,000 after being threatened with jail. This is likely a low-end estimate, since the data requested from Texas institutions did not include payments made due to the intimidation of the criminal complaint.
This situation reflects the exploitation of the economic underclass in two ways. Firstly, payday lending is a business practice that takes advantage of those without access to basic banking services. Low-income families turn to these loans in times of need, but the industry makes most of its profits from those who can never catch up and end up paying thousands of dollars in fees for a loan of a few hundred dollars. It is estimated that the industry takes around $3 billion from the poorest communities in America each year.
Secondly, the legal and economic system is criminalizing poverty. Courts have been known to substitute fines for jail time when people can’t pay, and the privatization of probation services has added fees and charges that can land people in jail even after they’ve paid their debt. 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. This is a stark reminder of how debtors prisons, which were abolished in the 19th century, are still a reality in some parts of the country.
