Sunday, November 10, 2013

Advisory warns against using prosecutors as debt collectors for payday lenders

The Texas District and County Attorneys Association website has posted a notice to prosecutors about using their hot check divisions as a stalking horse for abusive payday lending practices. It reads:
We have been asked by State Rep. Mike Villarreal (D-San Antonio), chairman of the House Committee on Investments and Financial Services, to notify prosecutors of a recent advisory bulletin issued by the Office of the Consumer Credit Commissioner (OCCC) regarding payday lending.  Specifically, the agency is warning payday lenders against using a prosecutor’s hot-check division “simply as a means for collecting on delinquent loans,” especially those secured by post-dated checks from the consumer/borrower.  These lenders’ (alleged mis-)use of the criminal justice system was highlighted in an expose earlier this summer that should serve as a warning to unsuspecting hot-check divisions.  Fortunately, you now have a statement from the state agency regulating these businesses that will back you up if you decline to pursue charges.
The expose mentioned was a story in the Texas Observer by Forrest Wilder* contending that District and County Attorneys offices are "functioning as a debt-collection service for payday lenders." Bexar County ADA Cliff Herberg "said his office won’t prosecute cases in which a payday loan is involved unless there’s a clear case of fraud or deception. 'If it’s for a loan, they’re not going to submit them to a criminal prosecution, it would be for collections purposes only.' However, the collections letters from the Bexar County DA threaten arrest, jail and criminal prosecution." So Mr. Herberg is splitting that particular hair might thin.

Like asset forfeiture, hot check collection produces a slush fund that elected prosecutors can use however they want. According to a TDCAA primer on the subject from 2008, "The statute gives the elected prosecutor sole discretion over expenditures from the hot check fund; the elected is not required to get approval from the commissioners court to use the funds." So there's a tacit economic incentive for prosecutors to look the other way when payday lenders attempt to use them for purposes of debt collection. It helps them grow their slush fund.

Over time, prosecutors have successfully lobbied to use hot-check funds for just about anything (except supplementing the pay of elected prosecutors themselves). "Originally, the legislature envisioned the money would be used to defray the costs directly attributable to the prosecution of hot check writers, but the spending guidelines have expanded over the years," according to the TDCAA primer. Further, TDCAA emphasizes that, "if a defendant has written several hot checks, there is nothing to prohibit you from collecting a fee on each check." So in aggregate, hot check fees can rack up pretty quickly.

Last month, Wilder reported on the new advisory from the Consumer Credit Commission which warned that payday lenders "should not use a district attorney's hot-check division simply as a means for collecting on delinquent loans." The new advisory clarifies that, "if a consumer postdates a check to pay for a payday loan, and that check later bounces, this is not sufficient evidence to show that the consumer committed criminal conduct." Instead, there must be additional evidence proving the consumers' intent to commit a crime. (Such intent is presumed for hot checks dated the same day as the transaction.)

Grits has long believed the law should be changed so that these slush funds - both for hot checks and asset forfeiture - go to counties' general funds instead of remaining under control of elected prosecutors. That would remove even the appearance self serving incentives regarding how those cases are handled, which presently is hard to avoid. Short of that, I'm glad the Consumer Credit Commissioner issued this advisory, but it remains to be seen whether their advice changes front-line behavior of the prosecutors and justices of the peace who handle the bulk of these cases.

*Kudos to Wilder, btw, for his excellent reporting on this topic. Great job, amigo, I'm proud of you.

10 comments:

Anonymous said...

Let's see, so the prosecutor's association publically cautions DA's across the state about becoming involved in the predatory lending practices of payday lenders, and Grits uses that as a public platform to berate and disparage Texas prosecutors. Typical.

Gritsforbreakfast said...

If you read the underlying articles, 12:22, there are prosecutors and JPs who've been complicit in the mis-use of their authority in deference to payday lending schemes. TDCAA didn't caution prosecutors on their own, they were asked by a House committee chair to post the advisory after the fact. But it wouldn't be necessary if there weren't prosecutors out there misusing their offices in the first place. TDCAA wants to pretend the payday lenders were preying on "unsuspecting hot check divisions," but to me that's self serving hogwash. IMO everybody knew what was going on, but some prosecutors just valued the hot check revenue over doing the right thing.

Gadfly said...

There's also the "tough on crime" angle, where DAs use this as part of boosting their re-election campaigns.

Anonymous said...

And you think it would be a better idea to let the commissioner's court be responsible for overseeing this money? Now there's an ethical bunch for you! Not!

Gritsforbreakfast said...

@2:40, yes I do - substantially better.

The point is to separate the incentive to collect from the authority to spend so you don't have situations like in Tenaha where law enforcement becomes a revenue generator disconnected from the pursuit of justice.

Anonymous said...

Gadfly, probably wouldn't help their tough on crime credentials with voters but I bet it would help them fundraise from the payday lenders. Maybe Mr. Wilder can check the CA and DA contribution lists for his next story.

Anonymous said...

Sooner or later prosecutors will be going after those who owe. Texas is a pro-business republican state. May not happen now, but under Abbott, it will. Watch and see...

12:22 Fuck Texas prosecutors.

Gritsforbreakfast said...

No need for vulgarity, 5:37. As for "going after those who owe," Forrest Wilder has shown that it's already happening. It's counterproductive to weaken the point by stooping to that level.

Anonymous said...

Sorry. I apologize. I just have a problem with psychopaths who act as though they're angels who are doing the work of God.

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