Payday loan regulation examined at council meeting

April 13—The Abilene City Council heard a variety of opinions Thursday on a potential ordinance that would provide local regulation for the payday and title loan industry.

City attorney Stanley Smith said 41 Texas cities have adopted such a model ordinance, or a variation thereof, by the Texas Municipal League.

“There's currently no state or federal regulation of these industries,” Smith said.

The Texas Finance Code has some provisions on the payday loan business, he noted.

“But as far as the terms and the conditions of the loan itself, that's left pretty wide open in the Finance Code,” he said. “It just says whatever the business and the consumers agree to, that's what the agreement will be.”

The proposed ordinance would require registration of all credit access businesses within the city limits, require the business to maintain complete records of all loans for three years and to make the records available to the city upon request, and would limit the loan to no more than 20 percent of a consumer's gross annual income or 70 percent of the retail value of a vehicle.

The ordinance further would require that repayment in installments not be in more than four installments, would prevent renewal or refinancing of installment-payment loans, and would require that any agreement be written in the consumer's language of preference.

Referral to credit counseling would be required, and state-mandated quarterly reports and any other requested information must be submitted to the city.

Councilman Anthony Williams said the average APR for payday lending is about 410 percent.

“Because of the rollover, it's significantly more than that,” Williams said. A traditional bank loan is about 18 percent, he said.

“I spoke to a lady a few months ago, and I want to say that she had borrowed $600,” Williams said. “Because of rollover, she said to me that in the end she was going to pay back $3,500, almost $4,000.”

Although no one forced the woman, or forces anyone, to seek a payday loan, Williams said he thought talking about the issue was a “valuable conversation.”

“A traditional bank, the bank has to go through a process that looks and sees are you worthy in regard to your capacity in paying that (loan) back,” he said.

With payday or title lending, the only requirement is “that you have an active bank account and you're ready to go.”

Certain populations may not feel comfortable, he said, going to traditional banks, meaning the issue is not always about the credit-worthiness of those involved. Williams also noted that the Military Lending Act prevents active-duty service members and their dependents from using payday lending.

Councilman Steve Savage said that he thought payday lenders and similar services, such as rent-to-own businesses, provided important services to those who sought them out.

“They're providing consumers with an option to obtain something that otherwise they didn't have the means, other than high-interest credit cards, or whatever,” Savage said.

Councilman Bruce Kreitler noted that on a personal bank loan for his home, he had paid $300,000 on a $50,000 loan over 30 years.

“A lot of this is just public perception,” Kreitler said, referring to perceptions about the large amount of money paid throughout the life of payday loans.

State legislators have examined the issue repeatedly, Smith said.

“There is a move in this session at the state level to regulate payday lending,” he said. “Whether it'll pre-empt local governments, whether it will not, whether or not they'll pass anything we don't know — and what they'll do on the federal level, as well.”

There have been “several rounds of litigation” regarding local ordinances, Smith said. Most recently, two businesses that operate in Austin were ticketed and filed a request in municipal court to see if that city's ordinance was pre-empted by the state's Finance Code.

That contention ultimately was upheld by the judge, though the city of Austin has appealed the decision.

Smith called that “a good thing,” since a higher court could make a recommendation whether all payday ordinances are pre-empted in a similar manner.

Passionate voices

Individuals on both sides of the issue spoke passionately about the proposed changes, including Cheryl Morris, who is disabled and said payday loans have “saved my life more than once.”

Banks won't loan Morris money because she does not make enough, she said, even though she has paid off her home.

“My insulin is over $2,000, and I have (insurance) and they don't pay all of it,” she said, adding that she takes 13 medications.

She said she hoped the council would not “interrupt” payday loan services by ultimately approving an ordinance.

Zach Snyder, who said he has more than a decade of experience working with low-income students and families in Abilene, spoke against the ordinance.

“Through my work, I've known many individuals who have been caught up in the cycle that only leads them further into poverty that comes from these types of loans,” Snyder said. “People who have paid monthly payments of $80 for five and six months on a $350 loan and still owe $450 when that time period is over. They owe more than when they started.”

Snyder said there are “people who are suffering” because of the payday loan industry.

A $10,000 car loan, for example, would become $200,000 over five years if financed at 400 percent.

“This is something that does not need to be sustained by our community, and we have the option now to do something about it,” he said.

Michael Brown, owner of Star of Texas Financial Solutions, is also president of the Texas Organization of Financial Service Centers, a trade organization of credit access businesses.

“The ordinance is a disaster for our business,” he said.

Brown said 1,463 businesses had closed because of such ordinances, with a 41.8 percent decrease in storefronts over a four-year period and 4,000 jobs lost.

“In the end, all of the store closures have resulted in the same amount of demand, the same number of loans, (roughly) the same number of consumers,” he said.

The only city to ever actually enforce the ordinance, as far as he knew, was Austin, Brown said.

“As soon as they enforced (the ordinance), the city was then sued by the operators because they didn't have legal standing to do so,” he said. “They promptly lost that suit.”

This issue is very complicated, Brown said, with many components that need to be discussed by qualified professionals, seasoned regulators, and legislators in Austin and Washington.

“I would ask that cities, Abilene included, focus on what their primary charges are, which are taking care of city infrastructure, water, safety, bridges,” he said.

Robert Wheeler said that after some credit access businesses inevitably close if the ordinance passes, people would seek out internet-based alternatives, many of which are not located within the United States.

“So whenever those customers have a problem, they have no recourse, they have no complaint process,” he said.

Kimberly Bhatti said that no one ever comes through the loan company she works for without knowing fees, repayment time, terms and interest. That includes discussion about how much of a loan people need, she said.

Jen Rogers, speaking after the meeting, said she had seen firsthand the impact of payday loans through working in campus and church ministry.

“I think Abilene, at its core, is a community that cares for its citizens, and I think this industry is one that only exists because of legal loopholes, and I think if the citizens of Abilene knew what was happening, they wouldn't allow it to exist.”

Rogers said the payday loan industry “hurts people every day.”

More financial literacy and more fair lending options could help those who would seek out payday loans, she said.

“We think that these industries take advantage of people when they're vulnerable and in need,” she said. “We have so many nonprofits, agencies, and churches that help the poor, and these people actually take from us. This industry actually sucks millions of dollars out of our local economy, because if someone is paying back a payday loan, they can't pay their rent and have to get help elsewhere.”

Councilman Shane Price suggested the item be further discussed at the council's evening workshop at 5:30 p.m. April 25, with time for public comment. A public hearing is scheduled for the council's regular meeting at 8:30 a.m. April 27. Both opportunities to speak will be in the Council Chambers, 555 Walnut St., in City Hall.

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