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How can a 767% interest rate loan be legal? It is in Texas.

Advocates say Texas has some of the weakest laws to protect consumers from what they call predatory lending.

HOUSTON — Even on a good week, 28-year-old Lexi struggled to make ends meet.

The college-educated single mother is employed as a computer coding instructor at an after-school learning center. But inflation, soaring grocery prices and unexpected car repair bills recently left her unable to pay the rent.

She was days away from getting kicked out of her apartment with her three young daughters.

“I was desperate. I needed money. I didn’t want to get evicted and I didn’t know what I was doing either,” Lexi said.

She asked KHOU 11 News to not use her last name.

Her desperation led to a Google search for “quick loans,” and soon, Lexi received three offers to lend her money. Admittedly naïve about finances, she didn’t read the fine print about the terms and conditions -- CreditNinja had a 447% interest rate, it was 680% from Speedy Cash and a whopping 767% annual percentage rate from the company NextLoan.

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“Outrage, shock,” Lexi’s boss at the after-school computer learning center Ellecia Knolle said.

Knolle said most of her employee’s paycheck was quickly gobbled up by the three lenders. The $2,600 in loans Lexi had taken out would take $13,067 to pay back over the course of two years.

“It’s just not right,” Knolle said. “This activity is preying on the poor.”

Consumer protective advocates have seen a rise in short-term loans during difficult economic times. They’re advertised as payday loans, car title loans and cash-advance or installment loans, but no matter the name, advocates warn the danger is the same -- a financial crater from which many consumers can’t dig themselves out.

So how can the exorbitant interest rates be legal?

“It’s a question I get asked all the time,” Director of the Fair Financial Services Project at Texas Appleseed, a partner with the Texas Fair Lending Alliance, Ann Baddour said. “People think, ‘Don’t we have rate caps? Don’t we have usury laws?’ But these businesses have kind of seeped through a crack in the system."

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Baddour explained that under the Texas Constitution, banks cannot charge more than 10% interest and that anything above that is considered abusive. But she said payday lenders aren’t actually lenders, but rather brokers or “credit access businesses” who arrange the loans. While the Texas legislature requires the CABs to be licensed under the state's Credit Services Organization Act, there is no cap on the fees they can charge.

“It has a veneer of regulation,” Baddour said. “And because Texas has extremely lax laws, on the face of it, nothing they’re doing breaks the law here."

Elsewhere, the exorbitant interest rates are banned. Sixteen other states and Washington D.C. have prohibited high-cost, short-term loans. Many have caps on interest rates, including fees, at 36%.

Speedy Cash and NextLoan did not return requests for comment. A spokesperson for CreditNinja said the company provides detailed cost estimates on its website and offers Texas customers a 10-day, no-questions-asked cancellation policy in the event that a borrower changes their mind. The company also said it offers repayment assistance for customers experiencing hardships.

“Thousands of our customers have reviewed our credit products on TrustPilot and we are proud to have a rating of excellent, which reflects our commitment to excellent customer service,” a CreditNinja spokesperson said.

The company is a member of the Online Lenders Alliance, which said credit access businesses help find risk-priced, small-dollar loans for people who are otherwise turned away from banks, credit unions and other traditional lenders based on their credit history.

“Online lenders are required by law to clearly disclose the terms, costs and conditions of each and every loan, giving borrowers the opportunity to make an educated financial decision,” Executive Director of the Online Lenders Alliance Andrew Duke said.

While other states have prohibited exorbitant interest rates and fees, efforts to rein in high-cost lending practices have repeatedly failed in the Texas legislature.

For borrowers like Lexi, it means having to protect yourself.

“I didn’t read the terms and conditions, and then boom it hit,” Lexi said. “I just realized I just dug myself into a hole that I don’t how to get out of."

United Way of Greater Houston offers financial guidance and assistance to lower-income through United Way THRIVE, a collaborative of nonprofit partners community colleges and financial institutions.

“We help families on their pathway to financial stability through increasing income, building savings and acquiring assets,” Senior Manager of Financial Stability Aaron Sturgeon said. “If someone is interested in connecting into THRIVE, just call 211."

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