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Council passes changes to consumer lending policies

Friday, May 22, 2020 by Nina Hernandez

On Thursday, City Council adopted changes to a city ordinance governing Registration of Credit Access Businesses to ensure that city regulations on consumer lending also apply to credit service organizations like payday and auto title lenders. The change, passed on the consent agenda, creates an offense and penalty and adds an application fee for those businesses.

In November, Texas Attorney General Ken Paxton ruled that state law allows extensions of consumer credit through forms of debt other than payday and motor vehicle title loans, defining those businesses as a subset of credit services organizations.

The question before the attorney general was whether Chapter 393 of the Finance Code permits a credit services organization to assist a consumer with obtaining an extension of consumer credit in a form other than a deferred presentment transaction or a motor vehicle title loan.

“Chapter 393 of the Finance Code does not restrict credit services organizations, other than when operating as credit access businesses, from obtaining for a consumer or assisting in obtaining an extension of consumer credit in a form other than a deferred presentment transaction or motor vehicle title loan,” the opinion reads.

That had implications for the city’s enforcement of its code regarding credit access businesses.

“The attorney general determined that credit access businesses are merely a subset of a broader group of lenders known as credit services organizations, that can provide credit through other forms of debt,” Rondella Hawkins, telecommunications and regulatory affairs officer, explained.

The section of city code modified by Council regulates consumer lending and helps protect citizens’ welfare by regulating and monitoring lenders. After the attorney general’s ruling, the code left out credit services organizations.

This change brings them back into the fold and allows the city to regulate them as credit access businesses.

That’s not all Council members have done to protect consumers during the Covid-19 pandemic. On April 9, Council asked that all financial institutions avoid “selling new financial products that may incentivize additional risky financial behavior, which will exacerbate economic distress and slow recovery because of missed payments or penalties in the future.”

“Ensuring that all credit services organizations are regulated by Chapter 4-12 helps prevent and reduce the harm inflicted by risky and predatory lending,” Hawkins wrote.

Council also asked financial institutions to expand their outreach warnings about predatory lending practices and fraud, and to make resources available for victims of predatory lenders.

“Ensuring that all credit services organizations must provide the city-prescribed forms described in Section 4-12-23 (Referral to Consumer Credit Counseling) ensures that consumers will be made aware of cash assistance programs that are available from governmental and nonprofit agencies and other information regarding extensions of consumer credit,” Hawkins noted.

Last week, the Human Rights Commission voted unanimously to recommend Council approve this change and close the loophole created by Attorney General Paxton.

Photo made available through a Creative Commons license.

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