In part one of this post, we discussed one aspect of the problem of payday loans in Texas. We noted how debt collectors seeking to collect on payday loans have sometimes pressured local authorities in San Antonio and other cities to threaten debtors with criminal charges.
In this part of the post, we will discuss the ethical issues that payday lending cases pose for prosecutors.
We will also note how trying to criminalize what should essentially be a civil process of debt collection resembles the out-of-control use of civil forfeiture by many government agencies.
Let’s begin with the ethical issue and close with a comparison between criminal payday loan cases and foreiture cases.
In our system of government, local prosecutors have a lot of leeway about which cases to bring. The term for this leeway is “prosecutorial discretion.”
Regarding payday loans, the Texas District & County Attorneys Association has made it clear that prosecutors should not misuse their discretion by being overly willing to file criminal charges at the request of payday loan debt collectors.
The reason for this is that for the vast majority of people who take out payday loans, there is no attempt to defraud the lender. And without such intent, it is unethical to bring criminal charges for nonpayment – especially when people entered into payday loans with predatory rates under often-desperate circumstances.
But local law enforcement agencies have a financial incentive – one might call it a temptation – to handle payday loans as if they were “hot checks,” written with intent to defraud. The financial incentive comes from the fee that local agencies may seek to impose on each collection transaction.
As in asset forfeiture cases, imposing such fees can enable local agencies to generate a discretionary fund controlled by the agency that can be used for various purchases. The problem with this, again as in forfeiture cases, is that it gives incentives to exploit the law – and other people – for the agencies’ own gain.
Source: Dallas Observer, “Payday Lenders Are Using Texas Prosescutors to Collect Their Bad Debts,” Eric Nicholson, Nov. 12, 2013