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Texas Borrowers Jailed for failing to pay back Predatory Loans

At least six people have been jailed in Texas for defaulting on their payday loans, according to public court records. Texas Appleseed, an economic advocacy group, found that more than 1,500 debtors face criminal charges in the state- even though Texas enacted a law in 2012 prohibiting lenders from using criminal charges to collect debts.

According to documents, 1,576 criminal complaints were issued against debtors in eight Texas counties between 2012 and 2014. These complaints were often filed by courts with minimal review and based solely on the payday lender’s word and inconclusive evidence. As a result, borrowers have been forced to repay at least $166,000, to the group found.

In 2012 the Texas legislature passed a law explicitly describing the circumstances under which lenders are prohibited from pursuing criminal charges against borrowers. In Texas, failure to repay a loan is a civil, not a criminal, matter. Payday lenders cannot pursue criminal charges against borrowers unless fraud or another crime is clearly established.

However, according to Texas Appleseed’s new analysis, payday lenders continue to routinely press questionable criminal charges against borrowers. In response to these findings, Consumer Financial Protection Bureau spokesman Sam Gilford said, “Consumers should not be subjected to illegal threats when they are struggling to pay their bills, and lenders should not expect to break the law without consequences.”

Despite being against state law, the data show that criminal complaints are an effective way for payday lenders to get borrowers to pay. Of the 1,576 criminal complaints Appleseed analyzed, 385 resulted in the borrower making a repayment on their loan. This deceitful strategy in using criminal charges to coerce money from borrowers means that payday lenders have a financial incentive to file criminal charges against debtors with alarming regularity — even if those charges are eventually and rightfully dismissed.

Texas is not alone in taking this approach. In 2011, The Wall Street Journal discovered that more than a third of states allow borrowers to be jailed, even though federal law mandates that loan repayment be treated as a civil issue rather than a criminal one.

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