Texas cities take action to regulate payday lenders


City councils across Texas are taking over the regulation of payday lenders and auto title lenders. But lobbyists, who were instrumental in blocking some high-profile state laws on lender regulation last year, have also been active in opposing municipal ordinances.

In Dallas, Austin, San Antonio, Brownsville, Irving, Mesquite, Sachse, Richardson, Garland, and Little Elm, city governments have passed zoning ordinances to limit the expansion of payday loan businesses in their cities.

The ordinances follow the 2011 regulations adopted by the legislature, which some city councils considered insufficiently complete. Recent state laws require payday lenders and auto title lenders to be state regulated and post a fee schedule in prominent places in their businesses, similar to general dining restaurant menus. fast.

Critics say the short-term, high-interest loans from these lenders have driven thousands of Texans into a cycle of debt and addiction.

“In Dallas and Austin, we are leading the fight at the local level because the state has been hampered by the significant lobbying effort undertaken by the industry,” said Barksdale English, political assistant to Austin City Councilor Bill. Spelman, who drafted a recently approved zoning ordinance that limits the location of payday lending and auto title lending businesses.

“[The industry] definitely hired two of the most active and influential lobbyists here in Austin, ”said English, referring to lobbyists at Armbrust & Brown. “Their lobbyists have been in constant contact with our office since December. In the last 10 days before the vote, they also met with other council members. “

Armbrust & Brown did not respond to calls for comment.

Payday loans are banned in 12 states. Some states cap the maximum loan amount, but in Texas it is unlimited.

The Texas Constitution says annual interest rates over 10 percent are illegal. However, this constitutional protection can be bypassed if payday lenders register their businesses as “credit service organizations,” which under state law are defined as organizations that improve credit history or credit ratings. consumer credit, or obtain an extension of consumer credit for their customers. Some payday loan and auto title companies charge interest rates of up to 500%.

“There was tremendous pressure to have some consumer protection… which would reduce the debt cycle and the huge burdens that are part of it. [the payday and auto title lenders’] business model, ”said Ann Baddour, senior policy analyst for Texas Appleseed, a nonprofit research and advocacy group. “Nothing that directly relates to the business model was passed by the Legislature in the last session. Cities felt the pressure to act.

Last year, the city of Dallas passed an ordinance requiring payday lenders and lenders to register with the city, and limiting the amount of loans that can be extended and the terms of repayment. The Consumer Service Alliance of Texas filed a complaint in response. CSAT said the order conflicted with state law and restricted access to credit for Dallas residents. The association also filed a similar lawsuit against the city of Austin for a different payday loan ordinance, which caps the maximum loan amount and restricts the number of times a payday loan can be refinanced. Both lawsuits are still pending.

“CSAT respects a city’s right to impose reasonable spacing, parking and signage guidelines on businesses operating within city limits,” the association said in a recent statement. “However … when orders restrict access to credit [and] eliminating consumer choice … the prescriptions have gone too far and will have unintended consequences. ”

City ordinances aim to prevent situations like the one faced by Lucille Florez, an Austin woman who took out an auto title loan of about $ 2,500 to pay for the funeral expenses of her husband and wife. girl. Florez assumed she could make monthly payments, not realizing that she would have to pay off the loan and fees within 30 days or transfer the balance to a new loan. Within four months, she found herself with $ 3,100 in debt.

“You will never get the full $ 3,000,” Florez said. “You will end up losing the car. I want people to know if they get a $ 2,000 title loan or $ 3,000 you might as well donate the car. ”

However, some Texans claim that payday loans are an important resource for low-income people who don’t have access to traditional bank loans.

At a city council meeting last Thursday, Manny Camero, a resident of Austin, said payday loans have helped him deal with emergency financial situations. State law allows borrowers to cancel their loans within three days. So Camero took out small loans a few days before receiving his next paycheck and paid them off before the interest rates went into effect.

“I think it benefits people when you only use it for emergencies and small amounts,” said Camero, who borrowed $ 200 from a payday lender to replace a truck tire. “When people start getting bigger loans than they finally can’t afford, [it’s] just like in retail banking … they don’t have to do anything to get a loan of this magnitude. ”

The issue has caught the attention of several statewide religious organizations, including the Texas Catholic Conference, the Texas Baptist Christian Life Commission and Texas Impact, which have spoken out on the issue and formed a coalition to l statewide called Texas Faith for Fair Lending.

Last year, Bishop Joe Vasquez of the Catholic Diocese of Austin testified that nearly 20 percent of those helped by his diocese’s charitable division sought help with debts resulting from payday loans and auto titles. In 2010, he said, his diocese provided approximately $ 1 million in aid to these people.

“We want good practices,” Vasquez said in a recent interview, adding that the bishops of Texas had made the issue a priority. “We want to make sure that people’s rights are respected and protected. We believe that most of the people who are victims of these particular practices are the poor and vulnerable in our society. ”

For now, recent municipal ordinances remain in effect. But Bennett Sandlin, executive director of the Texas Municipal League, said the ordinances could be overturned by the legislature next year.

“We hear that there is a possibility that some people want to ban municipal payday loan ordinances, and it is possible that legislation will be tabled to that effect in 2013,” said Sandlin.


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