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Customer beware of short-term loans

Profile image for By Peggy Heinkel-Wolfe / Staff Write
By Peggy Heinkel-Wolfe / Staff Write

Sybil Shephard just wanted to help.

Last September, a friend needed money and she’d heard Speedy Cash was a good place to borrow. Shephard, 47, agreed to drive her friend, with baby in tow, to the Arlington store. Speedy Cash didn’t have a Denton location at the time. The friend pledged to use some of the money from Speedy Cash to repay Shephard for the gas to get to Arlington, Shephard said.

When Speedy Cash declined to loan to Shephard’s friend, Shephard borrowed instead.

She took out a short-term loan for $164, otherwise, “we’d have been stuck in Arlington,” Shephard said.

Shephard had taken out a short-term loan before, when she recently needed money to pay her utility bill. She went to Cash America in Denton and borrowed $166, which she was able to pay back.

Born and raised in Denton, and living all but seven years of her life here, she knew there were community resources to help. She recently got help herself to end a brief, abusive marriage and she is starting a second career as an evangelist to women.

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Even so, as a mother of two and grandmother of four, she’s not accustomed to asking for help. When she has gone to community groups, she found it difficult to follow through with the paperwork and the time away from work, she said.

“People don’t know that it’s hard enough to even come and ask,” Shephard said.

Because she had been able to repay a short-term loan before, she thought she would be able to pay back the loan from Speedy Cash. But then, as Shephard said, “life happened” — her car needed some expensive repairs and two new tires. She couldn’t pay the cash back right away. Now, the company hits her bank account regularly to claim fees owed under the borrowing contract.

“That’s when the nightmare began,” Shephard said. No matter how friendly and helpful a bank employee will try to be in determining how much is in Shephard’s bank account, she said she wasn’t able to manage her limited funds with Speedy Cash able to debit her account directly.

She’s been hit with $360 in bank fees so far.

Her first loan payment of $30.32 came due Oct. 5. The second payment of $35.93 came due Nov. 5. No part of either payment was applied to paying down the original principal, the $164 that Shephard borrowed.

Shephard wasn’t really sure how much she could end up paying, although she regularly gets mail with reminders that she owes.

“I’ve called them and told them I’m trying to pay it back,” Shephard says. “I know I owe it.”

The original paperwork she got from Speedy Cash doesn’t lay out more than the first two payments. Instead, it advises her of the schedule of billing statements if she is unable to pay it off in the initial term. The disclosure statement advises her that it will include more interest and fees, and that more paperwork will come later about her loan costs.

The disclosure statement states the loan matures in six months and provides the interest rate, which is compounded daily at 0.657534.

In other words, unlike mortgage declarations or similar bank loan documents that calculate the total cost of the loan and are presented when the borrower signs for the loan, Shephard’s disclosure paperwork from the storefront does not.

Instead, it advises her that it is a high-cost loan and gives an example of the costs of a $500 loan, which would cost $1,708.21 to repay if it went to maturity.

Bill Baker, spokesman for Wichita-based Speedy Cash, said the company’s credit lines are intended to be short-term and the disclosures comply with federal, state and, where necessary, local laws.

“The cost of borrowing is clear to the customers,” Baker said, adding that once a loan goes beyond the initial term — which is measured in days or weeks, not months — other variables can enter in, such as the cost of a fee if a payment comes late.

But Speedy Cash works with its customers, because “life happens,” Baker said. “That’s the reason we exist.”

It’s not in the best interest of the company to have customers who are unable to pay, he said.

“We give the most flexibility we can under the law,” Baker said. “If a customer is having difficulty paying it off, we offer a lot of options.”

For example, when the loan matures, a customer can re-loan, but they can’t just roll the whole thing over, he said.

“There is a mandatory buy-down,” Baker said.

The storefronts of the short-term lenders ostensibly help customers improve credit scores or get a line of credit, or offer advice on those matters. But they are not the actual lenders, state regulators say. About 70 percent or more of 3,400 to 3,600 short-term lending locations in Texas are controlled by larger corporations. The storefront is key to the whole transaction, offering access to credit for fees that the state does not regulate.

Payday and title lenders have reported to state regulators their effective annual rates under a new law that went into effect this year. Those rates ranged from 445.51 percent to 1,017.59 percent in 2012. The average loan of about $300 costs a Texas consumer more than $800 to repay. And like Shephard, about 70 percent of borrowers in Texas are unable to pay their loan back in the initial term.

The Texas chapter of the AARP has found that 1 in 5 short-term borrowers in Texas are age 50 or older, and they often borrow to help out a family member, according to Joe Sanchez, the group’s associate state director for advocacy.

AARP Texas recently conducted a poll, he said, to look at how people felt about capping payday loan fees. The poll showed that 63 percent of people ages 45 or older support a state law that would cap the interest rate — a move that lenders have said, depending on the rate, could put them out of business.

According to Denton for Fair Lending, a coalition of nonprofit groups and community leaders concerned about predatory lending, at least $2.6 million in wealth was drained from the city last year in the form of interest and fees that was reported by the licensed storefronts. In addition, the lenders repossessed at least 66 cars in Denton last year.

Although Shephard finds negotiating with the company very stressful, she isn’t dodging responsibility for her decision.

“I don’t want to be ugly, but I’m trying to prioritize,” Shephard said.

If one of her children or grandchildren needed cash and was considering borrowing from a payday or title lender, she would hope they do differently and truly consider it a last resort.

“That doesn’t even need to be Plan B or Plan C or Plan D — it needs to be way out there,” Shephard said.

Staff writers Bj Lewis and Britney Tabor contributed to this report.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881. Her e-mail address is .


This is the second in an ongoing series about short-term lending. The Denton Record-Chronicle news staff gathered a number of government records under Texas open-records laws to prepare this series as part of Sunshine Week 2013.

To determine the scope of payday and title lender presence in Denton, we first gathered information from Reference USA, available through the Denton Public Library. That database uses information reported to the Occupational Safety and Health Administration on types of businesses and later confirmed by Reference USA. We checked that data not only by requesting registration and compliance records from the Texas Office of Consumer Credit Commissioner — a year-old law requires payday and title lenders to register with the state — but also by driving to listed and known locations.

We also requested Uniform Crime Reporting data, as reported by the Denton Police Department to the Federal Bureau of Investigation, for 2008 through 2012. We used database and mapping tools to examine the data.

Sunshine Week began in 2002 with the Florida Society of Newspaper Editors after the Florida Legislature proposed scores of exemptions in that state’s open-records laws. Since then, Sunshine Week has grown into a national initiative to promote the importance of open government and freedom of information.