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Payday lending regulations headed back to Council for consideration

Monday, March 5, 2012 by Elizabeth Pagano

The final piece of payday lending regulations is headed back to City Council with a positive recommendation from the Planning Commission.


Council unanimously passed an ordinance regulating alternative financial institutions last August. They also initiated land use code amendments for payday lenders at that same meeting, and those amendments are now on their way to Council for final approval.


On Tuesday, the Planning Commission voted 7-2, with Commissioners Richard Hatfield and Alfonso Hernandez voting against the recommendation. A section of the ordinance that requires the businesses be located in a free-standing building was a sticking point for some.


Council Member Bill Spelman’s office told In Fact Daily that the intention behind requiring the businesses to be located in separate structures was included intentionally in order to “take the convenience factor out of it.”


After several discussions, both at the Planning Commission and at its Codes and Ordinances Subcommittee, the majority of the commission agreed with this line of reasoning.


“We would like to make sure that consumers who use these services really have the opportunity to be thoughtful about it and really be sure that this is going to be an appropriate decision for them. I’m slightly uncomfortable with the free-standing requirement… But I tend to agree that we want to have a little bit more of a conscientious requirement on this particular use,” said Commissioner Saundra Kirk.


Commissioner Mandy Dealey said she had given the matter a lot of thought, saying, “At first it seems unreasonable to expect that these businesses have to be in a free-standing building, the more I’ve thought about the importance of making sure that the consumer really weighs the importance of his decision, so it can’t possibly be spur-of-the-moment… I think that asking that it be in a free-standing building is just one more way to try and give them more of a chance to consider this.”


Deborah Reyes, a lobbyist representing Advance America, told the commission that her clients were against the free-standing building requirement in the ordinance.


“I can tell you that our customers don’t walk up to a UPS store to mail a package, and see my store next to it and go, ‘Oh. Maybe I should borrow $500, because it’s right there.’ That’s not how it works,” said Reyes.


“The rationale that you want to require someone to make a specific trip, or a deliberate decision to go and borrow money has nothing to do with being next to UPS or near an HEB or next to Kick-Butt Coffee. There’s certain things that consumers must bring with them into the store in order to get a loan, and most of us don’t carry these things around with us,” said Reyes, who explained that those seeking a loan from her clients were required to produce bank statements, utility bills, pay stubs, and a Social Security card in addition to a driver’s license in order to procure a loan.


Hernandez attempted to amend the recommendation to exclude the free-standing requirement, but it only received three votes: from himself, Hatfield and Chair Dave Sullivan.


“I would like to strike that particular provision. I just think it’s completely onerous on the businesses to have to do that,” said Hernandez. “There is a need for it, as unfortunate as it may be. I don’t think that putting the onus on a small business to find a free-standing business is the answer. I think we need more financial education in our minority communities. I think that would do a lot more good than making a business move to a free-standing building.”


Hatfield also disagreed with the stipulation, saying that while he was bothered by these types of loan businesses, he felt like the requirement that they be in separate structures should not only be applied to this one business, but rather a category of businesses.


Though the Planning Commission spent the majority of its discussion focusing on the stand-alone requirement, there appeared to be a consensus of support for the rest of the amendment, which specifically defines what, exactly, an alternative financial institution is, as well as placing a number of other strict zoning regulations on its location.


“It almost seems to me that there is a possibility of a liability because of discrimination,” said Hatfield.


Right now, alternative financial institutions may not be within 1,000 feet of one another, within 200 feet of residential properties, or within 500 feet of several specified major arterials. Alternative financial institutions may not be located at all within the East Austin, Waterfront, or University Overlay Districts.


All of the new land use regulations would apply to new payday lenders, with existing ones grandfathered.

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