Fort Worth has several options if it wants to join the growing list of Texas cities that regulate payday lenders, and while some council members consider the matter urgent, others expressed caution over regulating the banking industry.
Nearly 70 Texas cities have enacted some kind of regulation to limit payday and auto title lenders, which have been criticized as predatory toward people with low incomes and other vulnerable populations, leaving Fort Worth as the only major city in the state to not take action.
City staff Tuesday presented five options to rein in payday loans, which ranged from regulation to simply educating people about best financial practices.
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 businesses are predatory to our most vulnerable citizens,” said Councilman Dennis Shingleton. “We got to find a way to regulate, educate and service those vulnerable.”
These 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,” she said.
One loan for $400 would cost more than $1,600 to pay off over 12 payments because of annual percentage and other fees, she said.
Randle Harwood, the city’s planning and development director, cited a Pew Charitable Trusts payday lending study that showed 69% of those who take out payday loans use the money to pay for recurring debt. The average borrower takes out eight loans a year, spending $520 on interest and fees for an average loan size of $500. Most of these people are women between 25 and 44, but the Pew study found a high number of payday loan customers lack a college degree and earn less than $40,000.
Meanwhile the payday loan industry has said they provide needed cash to a population that otherwise wouldn’t be able to obtain loans.
Rob Norcross, spokesman for the Consumer Service Alliance of Texas, told the Star-Telegram in November that tougher regulation on the payday lending industry restricts the ability of low-income families to get credit.
The five options staff pitched Tuesday include:
▪ Increasing education and financial coaching for people most likely to fall victim to predatory lending.
▪ Broadening the community loan pool. Details have not been worked out, but Harwood said the city could explore bringing several banks together to create a loan pool the spread the risk across multiple lenders.
▪ Adopt an ordinance regulating payday lending businesses similar to the Texas Municipal League’s draft ordinance that has already been adopted by several Texas cities.
▪ Support statewide legislation on payday lending.
▪ Adopt zoning changes the limit the number of payday loan operations in an area and require lenders to apply for a special permit.
A little more than 100 of storefronts for such businesses exist in Fort Worth, and only a few new ones are built each year, said Harwood.
No shortage of payday and auto title lenders can be found on East Lancaster or Jacksboro Highway, said Councilwoman Kelly Allen Gray. The council has discussed regulating them repeatability, she said, but the time for action has come.
“We can find lots of reasons to wait, but that doesn’t take the place of the fact that we have single mothers ... who find themselves in debt,” she said.
Texas does little to regulate payday and auto lending, often called credit access businesses.
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.
Gray and Councilwoman Gyna Bivens voiced support for moving forward with the Texas Municipal League ordinance and zoning limits.
Mayor Betsy Price, however, called the business regulations a “slippery slope.” She said she favored zoning, a banking pool and increased financial education, but she worried about how a the Municipal League ordinance would be enforced.
“They do exist because there is unfortunately a need, and we need to figure out how to counter that with education,” she said.
Councilman Cary Moon voiced the most skepticism, urging caution over attempting to regulate the banking industry.
Dallas, Denton and Austin have faced lawsuits over their ordinances. The Dallas and Denton cases ended in state appellate court rulings that upheld the city’s ordinance, Baddour said. The Austin case is still pending.
“We’ve got to be careful,” Moon said.