Once the largest city in Texas to not regulate payday lending, Fort Worth takes action
Fort Worth, once the only major city in the state to not regulate payday lending, joined dozens of other Texas cities in limiting the companies that have often been criticized as dangerous to those with low incomes.
On a split vote the Fort Worth City Council on Tuesday approved a new set of regulations designed to rein in on payday and auto title lenders, often called credit access companies. The vote came after more than a year of debate between the council members and city staff on how best to regulate the industry.
With a payday loan, borrowers take out a short-term loan for generally less than $500, with payment due on the borrower’s next payday. Depending on the lender, borrowers pay a fee, about $10 to $30 for every $100 borrowed. If the loan is rolled over or renewed, fees are charged again. Texas doesn’t limit fees.
These loans are “predatory” said council members Kelly Allen Gray and Dennis Shingleton, who have been vocal proponents of regulation.
Gray equated payday lending to dollar stores, which the council also recently voted to regulate. Both have become common in her district, she said, pointing to a stretch of East Lancaster Avenue where dollar stores, lenders and pawnshops line the road.
“Does this fix the situation? No,” Shingleton said. “It’s a step in the right direction.”
The council approved the regulations 5-3 with council members Cary Moon, Brian Byrd and Gyna Bivens voting against the regulations. Mayor Betsy Price was in Washington, D.C.
The regulations require credit access businesses:
▪ Register with the city annually and display a certificate of registration.
▪ Maintain records about borrowers, including how much has been lent, for at least three years.
▪ Provide information on non-profit agencies that provide financial education and training programs and agencies with cash assistance programs
▪ Provide loan information in consumer’s language of preference. If a borrower can’t read, the lender must read the loan information to them.
▪ Limit the number of installment payments to four.
The ordinance limits cash advance loans to 20% of the borrower’s gross monthly income and auto title loans to 70% of the car’s value. Payment installments must be used to repay at least 25% of the principal amount.
The regulations impact both existing and future businesses.
The Fort Worth Star-Telegram drew attention to Fort Worth’s lack of payday loan regulations with a profile of a woman caught in a debt trap in 2018. The last robust conversation about payday lending among city leaders was during a work session in August.
Lending controversy
Payday and auto title lenders often target those desperate for financial aid, said Ann Baddour with the Austin-based nonprofit Texas Appleseed. People with low incomes and bad or no credit are most likely to be harmed by payday and auto title lending. The high cost of the loans coupled with the recipient’s inability can “trap them in a cycle of debt forever.”
“These loans are very harmful to families and the community as a whole,” Baddor previously told the Star-Telegram.
Meanwhile, the payday loan industry has said it provides needed cash to a population that otherwise wouldn’t be able to obtain loans.
Rob Norcross, spokesman for the Consumer Service Alliance of Texas, has told the Star-Telegram that tougher regulation on the payday lending industry restricts the ability of low-income families to get credit.
Byrd said he understood that some who have turned to payday lending get trapped in debt cycles. He called the portion about financial education “fantastic,” but he couldn’t support the regulations.
He said he couldn’t find data that supported claims that people are helped when municipalities pass payday lending regulations. He worried that restricting payday and auto title lenders would increase the proliferation of pawnshops.
“Folks that are needing this cash are going to go get it any way that they can,” Byrd said.
Moon agreed. The ordinance doesn’t limit online payday loans, since the city can’t regulate online activity. More and more banking is done online, Moon said, and payday lending will continue there.
Moon argued it was the federal government’s responsibility to regulate the banking industry.
Payday lending in Texas
Nearly 70 Texas cities have enacted some kind of regulation to limit payday and auto title lenders.
State regulation requires licensing, data collection and legal disclosures, but laws addressing the cycle of debt facing many people have fallen apart in past legislative sessions.
In Texas, the payday loan storefronts act as a broker between the borrower and an out-of-state bank. Texas laws prevent borrowers from paying more than 10% to the third party, but a loophole allows the payday lender to charge uncapped rates and fees.
In the last session, the legislation creating the Texas Office of Consumer Credit Commissioner was amended to ensure that the agency has clear oversight authority over online lending.
Rep. Jim Murphy, R-Houston, requested a Texas Attorney General opinion early this month on whether these businesses could offer other products, like a signature loan.
At the federal level, two 2017 regulations from the Consumer Financial Protection Bureau would have required lenders to ensure people had the ability to pay their loans back and would protect people from being charged if they lacked the funds to repay the loans. Those have been delayed.
As many as 45 cities have enacted the Texas Municipal League ordinance, which regulates business by requiring payday lenders to register with the city, provide credit counseling and maintain records. The law also limits loan amounts and the number of installments, among other things.
Another 16 cities have passed zoning requirements that limit payday lenders from operating near low income neighborhoods, highways or within certain distances of other lenders. At least six cities have passed ordinances that combine the zoning rules and business regulations.
Dallas became the first city to regulate the industry in 2011 and several other cities around Fort Worth have joined. Arlington passed an ordinance in 2015 with Hurst, Euless and Bedford following in 2016. Grand Prairie, Flower Mound and Weatherford have ordinances along with Austin, San Antonio, Houston and El Paso.
This story was originally published December 18, 2019 at 6:00 AM with the headline "Once the largest city in Texas to not regulate payday lending, Fort Worth takes action."
