SAN BENITO, May 10 - Payday lenders are popping up all over and racking up record profits particularly in low-income communities across the state.

Even during the current economic crisis these companies are racking up record profits and opening new storefronts at record rates, from 1,513 storefronts in 2005 to more than 2,800 today. Texans took out $2.5 billion in loans from the payday companies last year.

Federal laws designed to crack down on some of the most egregious practices of these short-term loan companies has backfired big-time in the Lone Star State. In 2005, the Federal Deposit Insurance Corp. banned member banks from contracting with payday lenders. Soon enough, lenders discovered a loophole in a broadly worded Texas law that allowed them to operate as “credit service organizations,” or CSOs. While other states have literally told these loan sharks to get out of their state, Texas requires them to pay only a $100 registration fee with the Secretary of State, post a $10,000 bond for each store and that is about it.

Under the Texas CSO model, payday lenders have been able to set up loans through a third-party, “limited liability” corporation that charges ten percent annual interest. In turn, the CSO typically charges a $20 fee for every $100 borrowed, along with a 10 percent application fee—and then interest rates that can range from 300 percent up to 1,000 percent a year.

The payday loan process usually works like this: A borrower gives the payday lender a check for the amount being borrowed, plus fees. The lender keeps the check for the term of the loan—typically two weeks—then cashes it on the borrower’s next payday. The lender requires that a borrower have a bank account and a job.

Unfortunately for the most borrowers, it doesn’t stop with one loan due to these fees and interest. The payday lenders would like everyone to believe that they providing a valuable service to the community and that they are giving their customers “somewhere to turn in times of crisis.”

“If you take away payday lenders, you take away choice, and that hurts consumers,” says one Houston attorney who has set up CSO businesses for several payday lenders.

“Without the steep interest rates we couldn’t make a profit with a storefront business. We have retail overhead, employee payroll, and we have to lease space.” Yeah, sure.

Consumer advocates say payday lenders charge outrageous sums and feed off the most desperate, least sophisticated borrowers, usually low-income families. These lax state regulations could be tightened by our State legislators. In fact, 11 states and Washington, D.C., have capped interest rates at 36 percent. (In 2007, Congress capped rates nationwide at the same level for members and families of the U.S. military.) Several Texas cities like San Antonio, Richardson, and Mesquite have passed ordinances keeping payday lenders from operating near schools, low-income neighborhoods, and major thoroughfares.

Will the good legislators doing our bidding in Austin follow the other states to put and end to the exploitation of poor families? Are pigs flying yet?

In the past two sessions, many valiant Texas legislators have filed a raft of bills to rein in excessive interest rates and close the CSO loophole. Not one has passed into law.

Such obvious misuse of the State usury laws you say? What is the problem then? Plain and simple? It appears that our State legislature is owned, bought and paid for by the powerful and well funded lobbyists for the payday lenders. There one goal is to keep meaningful regulations and legislation of this industry from ever being heard.

The payday lenders are quick to point out that no one ever shows up at the public hearings, (except their lobbyists), and that they are simply victims of bad publicity from a bunch of do-gooder consumer organizations. Since the average consumer of a payday loan is a low-income worker with no money and no time to come to Austin for lobbying activities for anything, then I guess everything must be just fine then, eh? From the inside anyway.

In reality, the payday ‘industry’ spends millions to lobby legislators, create so-called Astroturf “consumer” groups giving the appearance that rank-and-file Texans love their payday loans. In reality the industry lobby enriches the campaign coffers of Democratic and Republican legislators and decision-makers. In fact, no politician has benefited more from their largesse than our current Governor, who received $29,000 from payday-lender PACs in 2008 alone.

In other states many governors and attorney generals have lead the charge against these types of businesses. In our state, our governor appointed the former vice president of Cash America as the chair of the Texas Finance Commission.  Does that pretty much sum things up?

The more one learns about the CSOs and how they operate in our State, the more one understands that the game is rigged, and the citizenry didn’t get invited to the party. The poor in Texas are getting poorer, and the fuel to the flame is being added by those we elected.

Ron Rogers is president and CEO of the South Texas Adult Resource and Training Center (START Center) in San Benito Texas.