An Arlington City Council committee is looking into potential regulations on payday lending and car title loan businesses, whose practices have drawn fire from some consumer advocates.
The focus is on two fronts: zoning regulations, including limits on where the businesses can locate and how much parking they must provide, and regulations of business operations, mostly loan terms, such as the amount of the loan and how many times it can be refinanced.
Councilman Robert Rivera, chairman of the Municipal Policy Committee, said in an interview that city staff will prepare recommendations for the council when meetings resume after the council’s July break. A final vote could come in September.
Supporters say fast-cash lenders are a lifeline for low-income people with poor credit and nowhere else to turn for emergency money. But some consumer groups and other critics contend that the lenders prey on the poor with steep late fees and refinancing charges that keep them in deepening debt. The federal Consumer Financial Protection Bureau this spring proposed new restrictions on what Texas calls “credit access businesses.” The Legislature, despite having several bills targeting them, declined to pass new restrictions during this year’s session.
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According to research presented to the Arlington council committee this week, at least 70 Arlington businesses can be categorized as payday lending institutions. The city has no land-use, or zoning, classifications for such businesses and no “special standards” for them, according to the staff report.
New zoning restrictions would not apply to lenders already doing business in Arlington.
Education, not regulation
Ultimately, Rivera said, teaching consumers how to look out for their finances is the best way to address the problem. He hosted a public seminar last year on the subject.
“It’s the idea of managing your wealth, managing your future and learning the skill sets to best manage a household,” Rivera said, stressing that the event involved no city funds. “Ultimately, we must educate our people so that they understand what they’re getting into and make the wisest choices they can.”
Rivera said he doesn’t give petty lenders a pass and pointed out that the insufficient-funds fee, or “NSF,” charged by banks, is “just as predatory as anyone else in terms of the dollars that are sucked out of households.”
Nationwide in 2013, 2.5 million people took out payday loans — each of which are typically several hundred dollars and secured by a postdated check or electronic access to bank account as collateral, according to the city staff presentation. Auto title loans are much larger and use car titles as collateral.
Nearly 380,000 borrowers of auto title loans in Texas paid as much as $360 million in fees in 2013. (That total does not include finances charges because the state doesn’t track them.)
Tarrant County a hot spot
Tarrant County is particularly popular for payday lenders. Clusters of stores line streets from Fort Worth to south Arlington to Haltom City. On East Lancaster Avenue, 11 storefronts conduct business. South Arlington had more than 55 locations in a 5-mile stretch between Interstate 20 and Interstate 30, 2012-13 records show.
“The payday-lender market has risen because of the demand of people for it,” Fort Worth Mayor Betsy Price said in February. “Businesses tend to pop up around demand.”
More than 2,000 new payday and auto title storefronts have opened in Texas over the past six years, according to the Texas Municipal League, a service organization for cities that attributes the spread partly to the failure of “meaningful reforms” to pass in the Legislature during that period.
If Arlington approves regulations on business operations of fast-cash lenders, it would join a list of at least 25 cities that have taken similar action, according to a May 1 update by the municipal league. On its website, the agency said it believes that those cities used a boilerplate ordinance that it crafted to help its members weather legal challenges.
Rob Norcross, spokesman for the Consumer Service Alliance, Texas’ payday trade group of 3,000 lenders, said cities would be better served to hold off on their ordinances until the federal Consumer Financial Protection Bureau publishes its set of regulations late this year or early next.
In late March, the agency proposed regulations that would require payday lenders to make sure borrowers can afford repayment and to notify borrowers before debiting payments from their checking accounts.
They would also limit the number of loans that borrowers can take out and the number of times lenders can try to withdraw payments from borrowers’ accounts, a practice that agency Director Richard Cordray said often results in excessive fees.
Consumers often think payday loans will be easy money, President Barack Obama said at the time, “but the average borrower ends up spending about 200 days out of the year in debt,” typically paying more than $1,000 in interest and fees for a $500 loan.
‘We would have to sue them’
Norcross said critics exaggerate the problem by focusing on a handful of the most desperate cases. Citing state data, he said, 50 percent of customers pay back their loan on time and 88 percent pay off their debt by the fourth refinancing.
“The bottom line for Arlington is, even though these loans are small, they are complex policy issues with financially vulnerable citizens,” Norcross said. “I would encourage them to get input from not only consumer advocates but from industry and other experts, like academicians and economists.
“If they did something consistent with what the other cities have done,” he added, “we would have to sue them.” (This month, the 2nd Court of Appeals in Fort Worth sided with Denton in a lawsuit by Ace Cash Express against the city’s ordinance on payday lenders.)
The financing charges are complex because lenders offer different types of loans. What’s more, the state does not enforce a rate cap. Nor does it tell payday lenders how much they can charge or how to structure the loans. The result: Virtually any rate or charge can be applied to a loan that is renewed.
In the Fort Worth-Arlington area, only Saginaw, Watauga and Flower Mound restrict payday lenders, according to the Texas Municipal League, which tracks cities that have approved restrictions.
Fort Worth, which debated restrictions on fast-cash loans and left it alone, is not likely to take up the issue again soon. Price said in February that she’s not interested.
“Who am I to say that if you are desperate, you shouldn’t be able to get that loan?” she said.
This report includes material from the Star-Telegram archives.
Robert Cadwallader, 817-390-7186