In late 2012, Gail Rowland's eyesight was dimming. She was in her late 60s, and knew she'd need a cataract surgery -- but the insurance deductible was going to be $1,000. She'd lost most of her savings going through a divorce, and needed the rest for daily expenses, so the rest had to come from somewhere.
That's when she noticed an ad in Greensheet, a listings site, for The Cash Store. She thought the ad said she could pay back the loan at her own pace, and so she didn't think too much about walking into one of their 15 Houston locations, handing over pay stubs and her bank account information, putting down the names of five friends and relatives, and leaving with $1,455 in crisp bills.
The APR was 581.72 percent. And that's some very expensive money: If she made all 10 payments as scheduled, it would have cost $2,831.54 on top of what she borrowed.
"They made it look like I could carry that out for year or two, but that's not how it ended up," Rowland says. "Should I have caught that? I should've, but I did not. You go in, and 15 minutes later, you walk out with cash in your hand. That is so easy and so appealing."
The payments started coming out of her bank account, every two weeks: $357.21, out of an approximately $1,600 pre-tax paycheck from her job at a construction supply company. What was left wasn't enough to cover her bills, so Rowland called them to ask for a break, but there was no negotiating. After a few months, on the advice of a local non-profit, she closed the account.
That's when the phone calls started. They called her every day, called her 80-year-old mother, her uncle, coworkers, asking if they knew what she was up to, and to tell her to get in touch. Gradually, the calls tapered down to every week, and then, half-heartedly, every month. And then, two weeks ago, somebody called her at work -- this time, claiming he said he was from the Houston police department. The IRS had audited her Wells Fargo account, he said, and found that she was still in debt.
"He wanted $1,600, and he wanted it before they hung up the phone," Rowland says. If she couldn't pay, said the voice, he would be over to bring her down to the police station and book her fingerprints right then and there. She told them she would call back, and never did, and the supposed police officer never came. So now, she's just waiting, in an uneasy stalemate. "I don't see an end to it unless they just let it go," she says. "It's tough, because did I take the loan? Yes. Should I pay it back in good faith? Yes. Have I tried? Yes I have. Are they doing anything to make it easier? They are not." (The Cash Store did not return a call for comment.)
Last Thursday, the federal Consumer Financial Protection Bureau entered an order against Irving, Tex.-based ACE Cash Express for some of the same practices that Rowland was on the receiving end of: Being "relentlessly overzealous" in its pursuit of borrowers, and creating a "culture of coercion" aimed at trapping them in cycles of debt. It was a high-profile bust, but will hardly curb the industry; the much longer-lived Federal Trade Commission has been taking such enforcement actions for years, and haven't managed to stop the abuse.
But something else is moving in favor of Rowland and people like her, lured into financial ruin by an immediate need for cash. On July 1, a city ordinance went into effect that makes some of the most pernicious parts of the loan she got illegal. And it's not just Houston: 18 cities in Texas in all have passed a similar set of rules since 2011, finally putting some limits on an industry that state law had previously left almost untouched.
It's just another example of how, as the federal government remains gridlocked and some states fail to act, cities are stepping into the breach.
Four years ago, ACE Cash Express was the company that turned Dallas Council member Jerry Allen into the payday loan industry's worst enemy.
The day before he was about to celebrate the launch of the Bank On Dallas program, which helps people get bank accounts, Allen got a call from a lobbyist asking if he would meet with the ACE's executives. He didn't have time, and declined. But the next day, along with regular council business, it became apparent that two council members had taken the meeting: They made a proclamation declaring ACE a model corporate citizen, after it donated $100,000 to relief efforts in Haiti. "It irritated me that these guys thought they could play that game," Allen said. "It was game on."
Texas has been a gold mine for payday lenders since 2005, when a court ruling sanctioned a loophole in usury laws that allowed them to charge whatever interest they pleased. Storefronts proliferated to the point where, according to a 2012 report by Texas Appleseed, the state accounted for 60 percent of the four biggest publicly traded firms' profits. A major push by religious and community groups to pass restrictions in the state legislature failed in its last biannual session, in 2013; they only managed to require that borrowers be provided with certain disclosures when they took out loans.
Allen, however, had already started pushing on a different front. In 2011, he got an ordinance passed that limited the number of installments on a loan to four, each of which must pay down 25 percent of the loan principal, and can't exceed 20 percent of a borrower's paycheck. On top of that, the council passed zoning restrictions that prevented new shops from opening within certain distances from highways, residential areas, and other payday lenders.
It's not really an aggressive set of rules. Because municipalities aren't allowed to legislate much on top of an area already regulated by the state, Dallas didn't limit the actual interest or fees the lenders could charge, so as to remain safe from legal challenges. Still, Allen says, not one single new "credit service organization," as they're called in the state, has applied to set up shop in Dallas since it passed. And meanwhile, 17 other cities -- including most of the largest, besides Fort Worth -- have passed similar rules. That's left advocates, especially Allen, feeling triumphant.
"You can run, but you better run fast, because we've got jets on," Allen says. "Go down your rabbit holes, because we're going to put concrete in 'em. We've got 'em on the run, and we're shooting 'em in the back."
Allen doesn't hold out much hope that Texas' next legislative session will significantly strengthen or standardize the ordinances that cities have been adopting on their own; he's just hoping the conservative House won't overrule them. In the mean time, he's waiting for the CFPB's expected rulemaking in the fall, which could include national requirements for a borrower's ability to pay back loans, even though the agency can't cap the interest rates outright. And importantly, he's working to develop alternative banking services, so people don't find themselves in Gail Rowland's shoes in the first place -- a common critique of the industry, which says people will just seek out even worse options if they can't borrow against their next paycheck.
One possible substitute: Community loan centers, like this one in Brownsville, Tex., which offer more affordable small-dollar loans. They'll have an easier time expanding once payday lenders retreat, as they have in most places that place serious limits on their operations.
"If there's a situation where people don't have access," Allen says, "well then dad gummit, we've got to get it to them."