Texas Supreme Court’s Decision on Payday Lending Conflicts with Positive Ruling by U.S. 5th Circuit Court of Appeals


Ms. Jones, a 71 year-old widow and great grandmother who fell on hard financial times, took out a payday loan in a desperate moment. When she could not repay the loan, she asked the business to work with her: “What I thought was going to happen was they would have some kind of sympathy for a senior who was living on a fixed income of Social Security and that they would allow me to make some kind of monthly payment.” Instead, the business filed a wrongful criminal bad check complaint against her in Justice Court.  She did not receive notice of the trial date and, when she came to Texas Appleseed asking for help, there was a warrant out for her arrest and a judgment requiring her to pay $919 to avoid going to jail over her defaulted $225 payday loan.

On, Feb. 23, 2018, the Texas Supreme Court, in Henry  v. Cash Biz, ruled that Texans like Ms. Jones will be forced into closed individual arbitration proceedings to try to get relief, instead of having access to the courts — this is despite the fact that illegal criminal complaints were filed, in this case by payday lenders, to collect on bad debts. Individual arbitration makes it very difficult for the average person to pursue a lawsuit based on egregious wrongdoing in small-dollar transactions like payday loans that average around $500. 

But state law and federal law differ. This ruling conflicts with an earlier established ruling by the U.S. 5th Circuit Court of Appeals on May 19, 2017. In Vine v. PLS, the outcome was that the loan company could not hide behind an arbitration clause, so the ruling allowed victims to have their day in court to oppose the loan company’s practices and to seek remedies. The Texas Supreme Court ruling offers a boon for payday loan businesses by making it nearly impossible to hold these outfits accountable for ongoing abusive treatment of their customers. It allows them to use publicly funded courts as both sword and shield, while leaving customers with little meaningful recourse for the harms incurred from the filing of wrongful criminal complaints.

Payday loan businesses have a history of abusing our criminal justice system to try to collect on delinquent debts. This behavior is unconscionable and illegal, yet it persists. As far back as the year 2000, payday lenders were wrongfully filing criminal complaints in Texas Justice Courts and with district attorneys. Nearly 15 years later, Texas Appleseed studied the issue after receiving multiple consumer complaints, and documented over 1,500 instances of wrongful use of the criminal justice system to collect on bad payday loan debts. Cash Biz was among the worst abusers of the law.

Over a two-year period, from 2012 to 2014, Cash Biz filed more than 300 criminal complaints through the Bexar County District Attorney’s Office and one Justice Court in Harris County.  Based on details from the Justice Court cases, 42% of the cases resulted in arrest warrants and 5.6% of the cases resulted in jail time served to pay off the fines. 

The company also appears to have deliberately set up their customers  to enable it to file wrongful criminal bad check complaints.   In documents from the Harris County Justice Court case filings, the company directed customers to date checks put up as security for the payday loan on the date of the loan transaction, instead of post-dating the checks, which is the usual course of business for payday loans. In place of post-dating the check, there was a contractual agreement to hold the check for the designated two-week loan period.  The effect of this seemingly technical difference was to give the superficial appearance of a bad check — as post-dated checks are exempt from the presumption standard for bad check and theft by check violations in Texas — and therefore create the opportunity to wrongfully use our criminal justice system as a free debt collector.

Businesses that engage in this kind of abuse must be held accountable — and our courts are a powerful tool for accountability.  We are dismayed by the Texas Supreme Court decision, and we will continue to advocate for fair lending practices in Texas.