Texas Cities Follow Dallas' Lead and Stand Up to Payday Lenders. Is the State Next?

Cash12.jpg
Psychonaught
That gleaming wad of cash comes with a 600+ percent interest rate, if Texas predatory lenders have anything to say about it.
In Dallas, the political atmosphere for payday lending reform is optimistic. After three years of ordinances limiting lending practices, the local movement has spread to 17 other cities across the state. Today, Dallas City Councilman Jerry Allen went before the Amarillo City Council to try and recruit that city to the fight club against loan sharks. "The momentum just continues to gain," Allen told Unfair Park. "After the 2011 session, I realized that the state wasn't really going to do anything so I got back and worked with the city."

And increased limitations can't come quickly enough: Texas has some of the most lax lending laws in the country, with the highest surcharges. There is no cap on lending fees, and some interest rates soar over 600 percent. Moreover, statewide payday lending reform has failed in the Legislature for the past three sessions.

According to Texas Appleseed, Dallas paved the way for metroplex and statewide limits on payday lenders. In 2011, Dallas enacted the first city ordinances in Texas that limited payday and auto title lending. "These ordinances have two purposes," says Brett Merfish of Texas Appleseed. "One is to provide what local relief they can, and the other is to put state lawmakers on notice that there needs to be a statewide solution."

The city ordinances limit how much a person can borrow, how many times their loans can roll over, and list specific land ordinance criteria. Through this, the city can help alleviate the debt that often unendingly piles on when borrowers are faced with sky-high interest rates.

"These payday lending guys, they don't want you to pay the debt off. When you keep renewing, they collect interest and fees," Allen says. "But since the land ordinance there has not been one single new payday lending store in Dallas, Texas."

And the feds are acting in Dallas too. The Consumer Financial Protection Bureau recently fined the Irving-based Ace Cash Express $10 million for its "cycle of debt" practices, and last year fined the Fort Worth-based Cash America $19 million.

Several other cities in Texas have since followed Dallas' example and passed ordinances of their own. And more could be in order as fear of litigation dissipates. In May, the 5th U.S. Circuit Court of Appeals rejected a suit by local payday lenders that claimed Dallas ordinances violated their business rights. But because Dallas payday lending ordinances cleverly limit payday lending practices, rather than completely shut them down, they were upheld in court.

"Before I left the chambers that day we passed the ordinance, one of the payday lobbyists came up to me and said, 'Councilman, you know we're gonna have to sue you,'" Allen says. "Pardon my French, but I said to them, 'We want to get your ass in a court of public opinion. We'll whip you in a court of law.'"

With this latest ruling, Amarillo could become the next in a steady succession of Texas cities that are adopting the Dallas anti-predatory lending model. And with the 84th Legislature set to ring in on January 13, it could send just the right message.

"I think the mere passage of these ordinances is a statement," Merfish says. "While Councilman Allen's initiatives have been effective, a lot of work has happened from the ground up. It's really a homegrown initiative, and this is evidence of something that is affecting Texas in a very real way."

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55 comments
naumanahmadshafique
naumanahmadshafique

This is kind of bad information for people living in Texas. Rather going to their local payday lenders, they would benefit more by going online to sites like http://www.htcashadvance.com/ where profit margins are relatively very low as compared to the local cash advance companies. Still if they go to the local lenders, we can only show disappointment over them.

upfacing
upfacing

Last I checked, many of Dallas’ working poor need better paying wages to get by; they don't need a financial babysitter. We routinely handout incentives and sweetheart tax breaks to low-wage employers like Walmart. Instead of regulating the poor while we dole out corporate welfare, why not incentivize employers to pay a responsible, livable wage to their employees?

msca99
msca99

High interest rate loans are designed to be short term. If you borrow $1000 till the next payday, the annual rate would be $300 but if you repay it in two months the fee is only $50. And there is a market because for a cash-flow challenged person it is a critical choice, and the consumer needs it. Don't manage by feelings, you are hurting the people you are trying to help. Regulate it and the choice goes away. Free markets work.

DonkeyHotay
DonkeyHotay topcommenter

So where are all the "small government", "deregulation" "free market" Teabaggers and Repuglycan Conservatards now?

parisrec
parisrec

Just got my identity stolen from a " cash n go " who processed loan online!!! Wired the money to a wells fargo account. Next came obnoxious collection agency..1,300$ demanded by some a-hole in Colorado. No way in hell I've ever used one, but some clown just accepted the false identity and wired away. 

Tipster1908
Tipster1908

Look, it sucks that some people are really poor. It sucks that some of them work hard but still can't afford to make it from paycheck to paycheck affording the things that they want and need. But what is the solution people would propose if they ban payday lending? Bank lending? Banks gave up on the payday lending customer base a long time ago. They open few, if any branches in those parts of town, and they certainly aren't looking to lend money to these folks. Many of the people seeking payday loans are bank customers who have been forced out of the regulated banking sector because of too many bad checks, or things of that nature. So if payday lenders go, who fills that void? I hear lots of complaining, but no solutions, and I definitely don't see a lot of people interested in lending their own money out at reasonable rates to the former payday lender customers.

mavdog
mavdog topcommenter

The payday lenders do fill a need, they just need to operate like all other lenders in Texas.

Make the payday lender subject to usury limits by calculating the effective interest rate being charged the borrower, not the nominal rate. this would include any fees the borrower pays as well as the interest rate applied to the loan.

Sharon_Moreanus
Sharon_Moreanus topcommenter

Now if they could do a land ordinance banks.

everlastingphelps
everlastingphelps topcommenter

The poor have less cushion when they get overextended.  This is a way to give them liquidity to get over cash flow issues.  Like others have said, this is often the lesser of two evils.


The problem is, the poor who stay poor are that way because (in part) they have poor money management skills.  Of course they are going to misuse this sort of thing -- they misuse all the financial instruments they can access.  Throwing out this method of short term finance just pushes them to loan sharks and other street lenders.  As bad as these guys may be, they aren't breaking anyone's knees -- and that is what will happen if the poor don't have access to some sort of legal, short term finance.

Anon.
Anon.

Being poor is expensive. These businesses know they have a captive customer base and so they charge as much as they like. In the process they further destroy the ability of these working poor to learn financial literacy. 


Old school loan sharks do not skin their customers alive like these businesses because the old school sharks want repeat customers. Payday and title loan businesses do not care. They just want it all, never mind the wreckage left in their wakes. Besides, the poor don't vote, so they are not heard in Austin. The money made off the poor is heard in Austin as Cash America and Ace spend just a fraction of their profits in their highly effective lobbying efforts. Those state senators that took apart John Carona's bill last session are cheap prostitutes indeed.


I applaud Jerry Allen's efforts. The legislature refused to do what is right, so Mr. Allen is doing it instead. Jerry has been so effective that even with Austin's refusal to pass meaningful regulation, over half the population of the State of Texas now lives in towns and cities that have adopted ordinances patterned after the one from Dallas.


These businesses destroy lives and remove economic resources from communities while providing no benefit. A $1,000 loan can, in three months, turn into $7,000 if it isn't paid off after the first two week period. If you don't have $1,000, and you won't have it in two weeks, how can anyone be expected to have $7,000 after three months? Without caring parents or other support systems like those provided by some churches (some of which actually teach financial literacy classes) these payday loan victims can do nothing but suffer. The ones who know enough can escape, but only by declaring bankruptcy. 


Banks and credit cards are highly regulated. Payday lenders should be too. One manager of a payday store once said in public comments at one of the council meetings where the Dallas style ordinance was eventually adopted that he has to charge such high fees and penalties because the default rate was so high. Perhaps the default rate wouldn't be so high if the fees and penalties weren't designed the take every last penny from these customers.


Too many people try to turn this into a question of protecting the ability of the poor to access loans. That isn't what those speaking in favor of these businesses are doing. They are supporting the ability of billion dollar corporations to continue to fiscally skin people alive. 


And that just ain't right.

jeffrswope
jeffrswope

I've had 2 loans through VIP Finance of Texas.  They do title loans for 6%, they have comparison contracts so you can see other companies actual contracts.  http://www.vipfinanceoftexas.com/ - Like someone else said - they were cheaper than paying the late fees and the lesser of two evils.


They will buy your loan from another lender as well.

CraigT42
CraigT42

I have not used one of these services in over 15 years, so my experience may be outdated and things may have gotten worse, but the 2 times I did need a loan, the high fees and interest I paid were still less than the late fees my apartment complex would have charged for my rent being late. 

I am in favor of reform, and consumer protection, but let's not throw out the baby with the bathwater. 

These places are symptoms of larger problems. Not the root cause. 

mandawritesthings
mandawritesthings

@Tipster1908 Exactly. It's a bunch of people who have no idea what it's like to be the kind of poor where you don't know if you'll be able to eat until your next check, thinking they know best. Just because someone making it just fine wouldn't accept this interest rates doesn't mean NOT taking a payday loan is an option for another person. 

DonkeyHotay
DonkeyHotay topcommenter

@mavdog ... apply that to Banks and Credit Card companies, who charge EFFECTIVE rates of 100% or more via the huge "fees" associated with bounced checks or being 1 day -- or even 1 hour -- late on a payment that may only be a few dollars itself.


Or how about the "fees" that the State itself charges when someone is late paying some $$ due, like DOUBLING a parking ticket fine, etc ...?

G_David
G_David

@everlastingphelps The average payday loan of $300 ends up costing the average borrower over $700 in fees and interest.  You have a weird definition of the word liquidity. 

Lorlee
Lorlee

@everlastingphelps You can have the best money management skills in the world, but if you don't have enough income it doesn't matter.  People working minimum wage just don't have any cushion no matter how well they manage.  One illness, car repair, unexpected bill can overwhelm the best money manager. 

everlastingphelps
everlastingphelps topcommenter

@Anon. The default rate is so high because poor people tend to misuse financial instruments.  If they didn't, the default rate wouldn't be so high (yes, it is a tautology because that is what the default rate means.)  Traditional lenders won't lend to them because they are a high risk, and the traditional lenders are limited on how much they can charge to mitigate that risk.  


This industry could certainly absorb more regulation, but you are going to see that passed on in some way to the poor that they service.  Too much regulation, and you regulate them out of existence, and the poor are back to loan sharks, who use blatant violence to get paid.  I prefer to keep the monopoly on violence with the government.


Buying a car on a payday loan is misusing the loan.  No competent advisor would ever tell them to buy a car on those terms.  Payday loans get used a lot more for things like bridging the gap on rent, car repairs, home repair, that sort of thing -- expenses that simply can't be put off for another paycheck.

DonkeyHotay
DonkeyHotay topcommenter

@CraigT42 "but the 2 times I did need a loan, the high fees and interest I paid were still less than the late fees my apartment complex would have charged for my rent being late. "


Bingo!


So why not REGULATE the maximum LATE FEES and PENALTIES that Landlords and Credit Card companies can charge?



TheCredibleHulk
TheCredibleHulk topcommenter

@everlastingphelps @Anon.

So, what I hear you saying is that poor folks should confer with their money-managers prior to securing financial assistance from payday lenders.

Got it.

Anon.
Anon.

@everlastingphelps


Besides, it is appropriate for home rule cities to regulate as they see fit and as allowed by law. That includes zoning (the land use part of the equation) and any other ways cities can legally regulate these businesses, especially in the absence of controlling state statutes. 


It seems that towns and cities representing over half the population of Texas agree.

Tipster1908
Tipster1908

@stuffedbuffalo @CraigT42 calling them fees is ridiculous. calculate the interest that banks are making by charging you $35 to overdraw by $5 and then tell me that payday lenders are evil. the way that payday lenders get shamed in popular media plays to journalists who assume their readers are ignorant.

Lorlee
Lorlee

@everlastingphelps @Lorlee Not sure what world you are living in.  Try reading "Nickeled and Dimed..." for a picture of how hard it is for hourly workers to make it no matter how hard they work.  And the 2007 recession kicked a lot more of them to the curb. 

TheCredibleHulk
TheCredibleHulk topcommenter

@everlastingphelps @Lorlee

That's actually pretty hard to argue with.

Although I will say that these types of operations make their hay in a struggling economy where even relatively responsible people that are underemployed can get stuck in that vicious circle.

Regulation needs to be robust and penalties for breaking the rules need some real teeth to keep these folks in line. If the expense to the end user is a little more, but the process is more forgiving, I think that that would be better for all involved. (Excepting, of course, the usurious payday lenders.)

Anon.
Anon.

@TheCredibleHulk


If the industry's proposed ordinance were adopted, customers would need professional financial advisors. Here are the relevant excerpts from that proposed ordinance:


(9) Reference Amount is an inflation-adjusted consumer income

reference amount for determining borrowing limits. The initial

reference amount is twenty eight thousand dollars. This amount

shall be adjusted annually in accordance with the Consumer Price

Index.


(A) The cash advanced under an extension of consumer credit that a

credit access business obtains for a consumer or assists a consumer

in obtaining in the form of a deferred presentment transaction may

not exceed:

(1) twenty five percent of the consumer’s gross monthly incomeif

the consumer’s gross monthly income is less than the reference

amount, or thirty five percent of the consumer’s gross monthly

for a single payment transaction; and

(2) ten percent of the consumer’s gross monthly income if the

consumer’s gross monthly income is less than the reference

amount, or fifteen percent of a consumer’s gross monthly income

for a scheduled payment of a transaction that provides for

repayments in installments.

(B) The cash advanced under an extension of consumer credit that a

credit access business obtains for a consumer or assists a consumer

in obtaining in the form of a motor vehicle title loan may not exceed

the lesser of:

(1) six three percent of the consumer’s gross annual income if

the consumer’s gross annual income is less than the reference

amount, or eight percent of the consumer’s gross annual income

for a single payment transaction; or

(2) twenty percent of the consumer’s gross monthly income

if the consumer’s gross monthly is less than the reference

amount, or thirty percent of a consumer’s gross monthly income

for a scheduled payment of a transaction that provides for

repayments in installments; or

(3) seventy percent of the retail value of the motor vehicle.


(D) An extension of consumer credit that a credit access business

obtains for a consumer or assists a consumer in obtaining and that

provides for repayment in installments shall may not be payable on

a fully amortizing, declining principal balance basis in not more

than:

(1) 180 days for a deferred presentment transaction; or

(2) 365 days for a motor vehicle title loan.

in more than four installments inclusive of fees and interest.

Proceeds from each installment must be used to repay at least twenty

five percent of the principal amount of the extension of consumer

credit. An extension of consumer credit that provides for repayment

in installments may not be refinanced or renewed once.

(E) An extension of consumer credit that a credit access business

obtains for a consumer or assists a consumer in obtaining and that

provides for a single lump sum repayment may not be refinanced or

renewed more than:

(1) four three times for a deferred presentment transaction; or

(2) six times for a motor vehicle title loan. Proceeds from each

refinancing or renewal must be used to repay at least twenty five

percent of the principal amount of the original extension of consumer

credit.

(F) If an extension of consumer credit that a credit access business

obtains for a consumer or assists a consumer in obtaining has been

refinanced or renewed the maximum number of times permitted by this

section, a credit access business must offer the consumer a repayment

plan to repay any remaining balance owed without additional fees prior

to taking any further collection activities. The repayment plan must

have a term of at least four payments equal in length to the payment,

or payments, in the original extension of consumer credit.

(G) For purposes of this section, an extension of consumer credit that

is made to a consumer within five seven days after a previous extension

of consumer credit has been paid by the consumer constitutes a

refinancing or renewal.

[And in case you cannot read, here is a section especially for you.]

(D) Every consumer who cannot read has three days from the origination

date of an extension of consumer credit (including, but not limited

to, any refinancing or renewal granted to the consumer) to cancel the

transaction without penalty.

everlastingphelps
everlastingphelps topcommenter

@TheCredibleHulk @everlastingphelps @Anon. Hardly.  I don't have a money manager, but I've got friends and family.  They have to know someone who isn't in constant arrears who can tell them, "you know what, buying a car that is 10% of your yearly salary on a two week loan is a bad idea."

ScottsMerkin
ScottsMerkin topcommenter

@Tipster1908 @stuffedbuffalo @CraigT42 I banked at Chase for a long time and even had a Chase credit card.  I used the credit card as an Overdraft protection, well little did i know that if you happened to need the protection they still charged you a $29 fee each time you needed the protection on top of the 12% interest the card charged.  Just a big a rip off if not more than just paying the $34 overdraft fee

TheCredibleHulk
TheCredibleHulk topcommenter

@Anon. @TheCredibleHulk

Also, thx for relevant info.

Unfortunately, my understanding of how these places work comes from firsthand experience when I was still pretty wet-behind-the-ears. Back then I'm pretty sure that there were tougher standards for these types of places, but they could still nick you a significant chunk if you were delinquent with your payments. (In reality, it might have been the best financial lesson I ever got.)

I think you've got it right, in a free society, there needs to be a balance between allowing people to make their own  financial decisions (good or ill) and allowing a predatory lender to allow or even encourage someone to borrow more than they can reasonably be expected to pay in order to "run up the tab" with a compounding, never-ending cycle of penalties.

Anon.
Anon.

@everlastingphelps


Respectfully, elected officials representing over half the population of the state do not agree with you.

Hot.Sauce
Hot.Sauce

Bouncing a check is a felony in many jurisdictions.

Hot.Sauce
Hot.Sauce

@elp that was your jockstrap

Anon.
Anon.

@everlastingphelps


I'll type a little more slowly since you don't seem to understand what I'm saying. 


Those Mayors and council members are not stupid. They are a lot closer to their voters than state representatives and state senators. And they are a lot harder for the businesses to buy through lobbying. These duly elected representatives listen carefully to their constituents and vote accordingly. By extension, it seems that in the towns and cities that have adopted a Dallas style ordinance, the public SUPPORTS these additional ways to curb the more extreme abuses of the payday lending industry.


BTW, have the folks criticizing these additional regulations actually read any of the adopted ordinances? They are not uniform, but all of them do some very simple things like cap the amount of a loan as a percentage of the borrower's income. The additional regulations are not extreme nor should they cause any business to close its doors. The ones that have closed were probably marginal storefronts to begin with. 


If you want to be totally confused, then search out one of the ordinances proposed by the industry. The rules in those proposals are incomprehensible.

RTGolden1
RTGolden1 topcommenter

@Anon. @everlastingphelps "Those Mayors and council members are not stupid."........ So....I take it we're not talking about Dallas, then?

everlastingphelps
everlastingphelps topcommenter

@Anon. @everlastingphelps I will say it a little more slowly as well, since you seem to be on par with a politician.


THose mayors and council members are stupid, and craven to boot.  They are bought more cheaply, and rarely have any sort of financial sophistication.  (Politicians in higher office are a little less rare to be financially sophisticated.)  Every regulation has an impact.  


Caps on a percentage of income?  Based on what?  Self reported income, or verified?  If it is self-reported, then they just tell them, "we can't give you a loan that is more than 10% of your income.  That means that if you tell us your income is less than $xx, we can't give you the loan.  Get it?"  It's childishly easy to bypass, and therefore is of no use.  if it is verified income, then the lender has the burden of verifying it and documenting it.  That's an additional cost that has to be passed on to the borrower, and that is before we get into the issue of people who live on cash incomes who aren't easily verifiable.


Like I said, this industry could certainly survive more regulation, but the costs of that regulation is going to be passed on to the borrowers, so whatever you do is going to be on the backs of the poor.

Anon.
Anon.

@RTGolden1


Even in Dallas there are some good council members. 

Anon.
Anon.

@everlastingphelps

I suggest you run for elected office given these glib answers for everything. In reality, no situation is black and white and it is difficult to craft legislation that is both effective and fair.  It seems apparent that few commenting on this board have actually read the ordinance in question. Here is the model ordinance, if anyone is so inclined:

http://www.tml.org/payday-example-ordinance


The only studies that indicate that the payday loan industry is the best thing since sliced bread are the ones paid for by the industry. Independent studies show real, measurable increases in violent crime near payday loan stores. That places the question into the public safety arena. Other studies look at the economic impact on the customer base, which is for the most part bad. For the customer. That makes it an economic development question. A large number of these stores in a small area is a disincentive for other uses to go in nearby. That makes this a zoning issue. 


The model ordinance does not close down payday lenders. Rather, it is a measured response to an industry that, for the most part in Texas, is unregulated and indeed preys on its customers. Even under the model ordinance, payday lenders can still make huge profits. To an extent, that's just business. On the other hand, if you make the calculation according to bank and other lending industry standards, payday lenders want to make loans that deliberately trap their customers. I'll continue to look around for the industry proposed ordinance. If you can figure out the math, and then apply standard loan requirements, it is obvious the loan limits as stated in the industry ordinance exceeds the amount the customer can be expected to repay. Those originating the loan know, in advance, that their customer base will have a hard time repaying their loans because they are too large given standard lending practices with loan and debt to income ratios, etc. 


Here is one study:

https://www.cuany.org/access_files/outreach/Filene_-_The_Economics_of_Pay_Day_Lending.pdf


Another study:

http://qje.oxfordjournals.org/content/126/1/517.full

(This one is interesting - the author finds that taking out a payday loan actually LIMITS the ability of customers of this industry to take care of other needs like medical care.)


And another:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2028137

(This paper finds a link between payday loan stores and violent crime rates.)


The list goes on.


This is not as simple of a question as many try to make it out to be. A majority of the residents across the state, as indicated by how their most immediate elected representatives have voted, agree. That's not craven, that's how representative government works. What is craven is how easily the industry purchased enough of our state level elected representatives to represent the industry's interests instead of the wishes of the elected official's constituents. 


It is easy to second-guess public policy makers. It is a very different equation when you are in the hot seat.

Give it a try. Run for office. Then YOU get to be accountable.

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