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Unanimous Council approves new regulations for payday lenders
Friday, August 19, 2011 by Kimberly Reeves
City Council, backed by
Lobbyists for the payday lending industry pushed hard against the regulations in the days leading up to vote. But discussion to delay the two actions at last night’s meeting seemed half-hearted, and Council voted unanimously to curtail excessive loan rollovers and set limits on the placement of such businesses under the Commercial Services zoning category.
Both actions passed unanimously, on all three readings. Speakers last night included Walter Moreau of Community Foundations, who told Council at least one-third of the families that visited his office for financial counseling were carrying payday loans, often rolled over up to seven times, leading to interest costs that outweighed the loan amounts.
Two bills, including registration of payday lending, passed during the regular session of the Legislature. A bill to limit loan rollovers failed, but it’s popped up at various City Councils and passed in
“We need your help on this one skirmish in city, state and federal regulation. You should not postpone. There is not a middle ground to stand on with this industry,” Moreau told Council. “They prey on poor folks, and we need to stand up to them.”
Rebecca Lightsey of Texas Appleseed, which advocates for low-income Texans, said
The only voice in opposition to the proposed regulation came from policy analyst Ryan Brannan of the Texas Public Policy Foundation, a free market think tank. Brannan, however, seemed poorly versed in his arguments, had failed to bring his research paper on the subject, could not outline the legal challenges to the new ordinance in
In an exchange with Council Member Bill Spelman, however, Brannan did expound that the regulation of payday lenders should be market driven and that the amount of interest people should pay should be driven by what interest rates they were willing to pay in the lending marketplace. Dissatisfied customers, Brannan said, were going to move on to a new loan provider.
“Limiting or restricting these consumers to go to payday lenders is wrong because that is the only credit option that they have,” Brannan said. “Fifteen other states have outlawed payday lending, and the unintended consequences are more bounced checks, more loan sharks and more Chapter 7 bankruptcies. You have adverse negative consequences.”
Both Spelman and co-sponsor Mayor Pro Tem Sheryl Cole, however, pointed out that the ordinance would not stop people from using payday lenders. It would simply limit the amount of profit the lender could make off a loan. Spelman also cross-examined legal counsel on whether passage of the regulating ordinance, as Brannan suggested, would leave the city open to lawsuit such as the one filed against
“Taxpayers are going to be on the hook for paying for a lawsuit,” Brannan told Council. “I think that if we’re going to get at the bad actors, I don’t think hitting everybody with a sledgehammer is the best course of action. We should spend some time deciding exactly what to do.”
In an exchange with legal staff, however, Spelman was assured the city was comfortable with the ordinance and the defense of that ordinance if lenders sued the city. That appeared to satisfy Council members.
Both actions – business regulation and zoning category addition – passed on unanimous votes. According to the regulating ordinance, loans can no longer be more than 20 percent of the applicant’s monthly income. The ordinance also insists on installment, rather than lump sum repayment, plans. Loan amounts cannot be rolled over and refinanced more than three times.
According to direction on zoning, payday lenders will be classified under Commercial Services as an Alternative Financial Services Business. Such businesses must be at least 1,000 feet apart, at least 200 feet away from a residential use. The businesses also cannot be near a number of major city intersections or within established city overlays.
The new ordinance will take effect on Jan. 1, 2012.
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