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.