Ken Kalthoff, NBCDFW.com
A war is brewing in Texas against the explosion of payday and title loan stores, which now outnumber McDonald's and Whataburger chains combined. Critics say they charge staggering interest rates under a loop hole in the law.
According to Dallas officials, car title and payday loan store locations are more common in Texas than Whataburger and McDonald's -- combined.
But an industry trade group says the businesses are thriving because customers need them.
A North Texas coalition of opposition groups, including several churches, AARP Texas and the United Way of Metropolitan Dallas has formed to take on the payday loan industry.
"We don't think that there's not a place for payday lenders," Gary Godsey, Dallas United Way president and CEO. "We just think it's wrong to have the capacity to be able to charge people 500 percent interest. There's a place for a service as long as it's a regulated service."
The coalition says a loophole in state law allows the stores to call themselves "credit service organizations" and act as loan brokers and then charge fees much higher than banks and other lenders charge.
Tim Morstad, assistant state director for advocacy with AARP Texas, said state law would still allow the businesses to charge high rates.
"If we close the loophole, we're not throwing these businesses out of the state, because they should be able to operate profitably under the law as it stands," he said.
Danielle Ayers, a staff member at Friendship West Baptist Church in Dallas, said she helped a schoolteacher with her loan problems.
"She got a payday loan, couldn't pay that one back. She got another one, got another one, so by the time she came to us, she had seven payday loans in seven different establishments," she said.
Councilman Steve Salazar, who represents a Northwest Dallas district with many payday loan stores, said the businesses have thrived in the absence of traditional banks.
"The banks don't want to go into an area like West Dallas, and you have payday loans that are meeting the needs of the community," he said.
The city is also promoting a program called "Bank on Dallas" to encourage traditional banks and credit unions to be more available as an alternative to high-interest lenders and to help customers connect with those banks.
Nineteen Dallas banks and credit unions are involved, with a goal of opening 25,000 new accounts with customers who have been paying extremely high rates for check-cashing and loan-store services.
Those new bank customers could save an estimated $20 million as a group by avoiding high fees, according to Lee McKinney, assistant Dallas economic development director.
"All the money they would spend at check-cashing places, loans that you get that are predatory-lending-type loans -- if we take all that money they could bring that much money back into the households of those people who are now utilizing those services," McKinney said.
Officials also said zoning regulations to restrict the location of payday loan stores are also in the works at City Hall.
The City Council Quality of Life Committee took no formal action Monday on the coalition's request for a resolution for the Legislature, but Councilman Jerry Allen promised action in the near future.
"We will regulate those," he said. "We're going to show them that we're coming to play."
“Credit service organizations (CSOs) that facilitate small short-term loans in Texas are not opposed to future discussions about additional reasonable oversight.
“However, we strongly oppose any measure that effectively eliminates consumer access to short-term credit. Our members are taking a leadership role working with Texas legislators, foundations and legitimate groups representing consumers to protect consumer financial choices.
“We anticipate further conversations will continue over the coming months. CSAT members look forward to working with lawmakers on reforms that will continue to protect Texas consumers and the jobs of over 7,800 industry employees working in retail locations across the state that pay more than $18.5 million in taxes to the state and county governments.”