The ordinance, approved by City Council on Dec. 18, mirrors laws adopted previously in Austin, Dallas, El Paso, San Antonio and other small cities.
“I had initially favored a Houston-specific measure, but decided that joining with other Texas cities in a united front on this issue is the best way to send a strong message to the Texas Legislature,” said Mayor Annise Parker. “Lenders deserve to make a profit on their investments, but not by charging astronomical interest rates to desperate consumers who have nowhere else to turn for emergency financial assistance. The statewide model I am recommending for approval by Houston City Council achieves this balance.”
Missouri City and Sugar Land are taking steps to limit new CABs through their respective zoning regulations. Bellaire elected officials have asked the city attorney for guidance in the event Houston’s CABs seek to relocate there.
Payday and auto title loans are high cost, small-dollar loans offered to individuals without credit checks and little consideration for their ability to repay. The initial term is typically two weeks to one month, with the term usually determined based on the borrower’s pay cycle. A borrower who fails to make a payment on an auto title loan could wind up losing his means to get to work and take his children to school.
Under existing Texas law, there is no limit to the fees that payday lenders and auto title businesses can charge and no limit on the number of times they can charge high-fees for essentially the same loan — often trapping borrowers in a cycle of debt where they are never able to pay down the loan. For example, a fast cash payday advance of $500 that is rolled over five or more times could wind up costing $1,200 or more.
The new law in Houston regulates these issues by:
Requiring payday loan and auto title loan businesses to register with the city annually;
Limiting payday loans to 20 percent of the borrower’s gross monthly income;
Limiting auto title loans to 3 percent of the borrower’s gross annual income or 70 percent of the vehicle value, whichever is less;
Limiting single payment loans to no more than three refinances or rollovers and installment loans to no more than four installments;
Requiring each installment, refinance, or rollover payment to reduce the total principal owed by at least 25 percent;
Defining a rollover or renewal as a loan within seven days of the previous loan;
Requiring loan agreements to be written in easy-to-understand language;
Requiring contact information for non-profits offering financial literacy and cash assistance.
A community-wide coalition of non-profit agencies had been rallying for passage of the ordinance this year. According to the Houston Fair Lending Coalition, nearly one-third of non-profit clients seeking financial assistance in 2012 were in trouble on payday or auto title loans. Loan rollovers accounted for 76 percent of all payday loan volume, the coalition said.
Coalition member AARP issued a statement Dec. 18 through its Texas state director, Bob Jackson, commending the action by Mayor Parker and the City Council.
“The vote today sends a strong message that Austin needs to get its act together and adopt meaningful payday lending reforms that will help the millions of Texans who still are at the mercy of abusive lending practices,” Jackson said. “Texans should be able to access short term loans at reasonable terms. They should be informed and protected consumers, rather than victims of predatory lending practices.
“It’s encouraging that a coalition of faith and community leaders and local officials has taken on an issue pitting money vs. morality and come out with a resounding victory that will help Houstonians avoid falling into money traps and seemingly endless cycles of debt.”
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