In dozens of cities in Texas, payday lenders face increased restrictions on the amount they can charge borrowers. Past efforts to translate these individual municipal ordinances into statewide policy have failed.
This year, some state lawmakers are pushing for the opposite result: by passing measures that would either overturn these local ordinances or give payday lenders and auto title lenders the power to sue cities for orders that they do not like.
Under either proposal, critics predict that Texas would effectively revert to a uniform statewide policy that perpetuates a cycle of debt for millions of Texans.
“The people who are in these predatory loans don’t know what they are getting into,” said Matt Pogor of the Society of Saint Vincent de Paul – Austin Diocesan Council, a nonprofit organization that, among other services, helps borrowers. get out of payday loan debt. “They get these loans very quickly, in less than 30 minutes. “
Currently, the state limits payday loan and auto title periods to six months. Loans are often approved for periods of two weeks or one month, with average annual percentage rates of 454%, according to a 2014 study by Pew Charitable Trusts.
These rates reflect the total sum of fees, interest and principal that a borrower would have to pay over a period of one year; according to the same Pew study, it costs $ 70 to borrow $ 300 over a two-week pay period in Texas.
Senator Craig Estes’ Senate Bill 1530, R-Wichita Falls, would overturn all municipal ordinances relating to payday lenders and auto titles. More than 40 cities in Texas have passed ordinances restricting the activities of these companies, according to the Texas Municipal League. Most of these local ordinances restrict lenders from renewing a loan a maximum of three times and require loans to be repaid in four installments.
Supporters of the bill, including the Consumer Service Alliance of Texas, which represents large companies such as ACE Cash Express, Speedy Cash and Community Loans of America, say it would ensure regulations are applied consistently and fairly. statewide.
State Representative Giovanni Capriglione, a Republican from Southlake who drafted an identical version of the bill in the House, said the goal was to reduce the total cost of these loans by removing regulatory burdens. He also said local ordinances have not worked.
“That’s what the other 1,172 cities say… If it’s difficult, people can get in a car and drive somewhere else,” Capriglione said. “They basically tell people who don’t have access to capital to get in a car and go somewhere else. This is the most unfortunate position one can take when trying to help people.
Critics of the bill insist that local regulations have reduced the debt of people who take out payday loans. The Texas Appleseed nonprofit advocacy group has been working on payday loan and auto title reform alongside cities, nonprofits and faith-based organizations since the first local ordinance passed in Dallas in 2011. Religious leaders have been integral in establishing local ordinances regulating the convenience industry, Ann says Baddour. As director of the Fair Financial Services Project at Texas Appleseed, she helps cities implement local payday loan regulations.
“These ordinances have been passed in at least 42 cities thanks to the incredible local efforts of religious leaders, city leaders, nonprofits and some members of the business community,” Baddour said. “A lot of companies have seen how these loans have affected their employees. Some bought their employees’ cars because they lost theirs to auto title loans. “
Rob Norcross, spokesperson for the Consumer Service Alliance of Texas, agrees with Capriglione’s assessment that local prescriptions were offered with good intentions but were ineffective.
“We passed an ordinance that requires customers to go to the next town, or makes people lie and get two loans from two different companies or go on the Internet,” Norcross said. He pointed to the six-year Dallas order, which he said did not lead to a fine for a single Consumer Service Alliance company for violating the order.
“If you’re going to pass an ordinance, do it,” Norcross said. “Don’t just tell the newspaper you did it and tell all the defenders you did and turn around and do nothing about it.”
Stephanie Mace, senior director of public policy at United Way of Metropolitan Dallas, said the number of companies violating a local ordinance was irrelevant.
“The goal is not to shut down businesses,” Mace said. “The goal is to ensure that borrowers and lenders are successful in these transactions and that borrowers can take out a loan and be able to repay a loan that they have taken out.”
A separate bill from state senator Don Huffines, R-Dallas, would allow owners of state-licensed businesses to sue local governments for regulatory actions they believe affect them negatively. Huffines said Senate Bill 2178 would allow small businesses and workers to have their day in court.
“As you know, economic freedom is just as important as personal freedom,” Huffines said. “These prescriptions also entail additional costs. The purpose of this bill is to provide legal redress to licensees. Texans should have the freedom to run their business without onerous regulation. “
If the Huffins measure becomes law, critics predict that wage orders in the state will be prosecuted. Although a representative of the Texas Conference of Catholic Bishops – one of the most ardent advocates of payday loan reform – said the organization would withdraw its opposition if the bill was designed to exempt businesses from payday lending and auto title, Huffines said that would be unfair.
“To exclude certain professions or industries from the bill would be a disservice to economic freedom and free markets,” Huffines said in a statement. “Consumers and market forces will provide better and more viable solutions than government regulations ever will. I will remain consistent and unwavering in my support for economic freedom. “
The Senate Business and Commerce Committee heard public testimony Tuesday on SB 1530 and Senate Bill 2178. The committee left both bills in abeyance.
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Disclosure: The Texas Municipal League and Texas Appleseed have financially supported the Texas Tribune. A complete list of the Tribune’s donors and sponsors is available here.