PAYDAY LOAN AMENDMENT
The Fort Worth City Council, at its final meeting of the year Tuesday, addressed adopted an ordinance addressing payday and auto title lenders.
The council voted to amend the “Licenses and Miscellaneous Business Regulations” regulation to add “Credit Access Businesses” to the code to establish regulations for such business. The amendment is related to registration of such businesses, restriction on extensions of consumer credit and record keeping provisions.
The vote was far from unanimous, however, passing by a 5-3 margin. District 3 Councilman Brian Byrd, District 4 Councilman Cary Moon, and District 5 Councilwoman Gyna Bivens voted against it. Voting in favor were District 2 Councilman Carlos Flores, District 6 Councilman and Mayor Pro Tem Jungas Jordan, District 7 Councilman Dennis Shingleton, District 8 Councilwoman Kelly Allen Gray, and District 9 Councilwoman Ann Zadeh.
In Texas, payday and auto title lenders operate as credit access businesses (CABs), a special designation for a credit service organization that obtains for a consumer or assists a consumer in obtaining credit via a payday loan or title loan.
CABs serve as loan brokers, arranging short-term loans with third-party lenders. While the lender typically charges an interest rate near 10%, CABs may charge unlimited fees for their services. This results in interest rates of up to 500%, according to critics. This practice has resulted in pulling vulnerable communities into deeper financial crisis by becoming trapped in a cycle of short term, high interest loans resulting in large debt and huge payments, according to critics.
“How do we move people out of poverty and support businesses that keep people in poverty,” Gray said.
Tobie Savitz, Director of Programs for Pathfinders, which helps individuals and families dig themselves out of poverty, said, “These loans trap families.”
The ordinance is only applicable to CABs located within the city’s corporate boundaries and will not be enforceable against online lenders.
District 4 Councilman Cary Moon call it an ineffective public policy.
“Governments usually lose when trying to regulate banks, and the regulations typically just create barriers to access,” Moon said. “Banking is mostly electronic. Anyone with a mobile device can complete a payday loan.
“For those that are not able to access banking electronically, this ordinance constructs a barrier of access to convenient cash. On the interest rate and usury law discussion, at some point, we have all paid a $3 fee to access $20 bucks at the ATM.”
Byrd said that although many people end up in a debt spiral after rolling over debt acquired via payday lenders, he argued these businesses provide a valuable product for many who use the product for paying rent, buying Christmas gifts, or paying emergency medical bills.
“I was unable to find good evidence proving that these kinds of ordinances protect consumers,” Byrd said. “On the other hand, there is evidence that shows when municipalities eliminate payday lenders they see a proliferation of pawn shops, and when they eliminate both the mob steps in. My sense is that folks that need this money will get it one way or another. “When you pass ordinances of this kind you cause some lenders to close down, as I have heard happened in Midland, New Hampshire, and Pennsylvania, which decreases competition. Diminishing competition always hurts the consumer.”
Byrd cited a study by the Federal Reserve Bank of New York that concluded state bans on payday credit in Georgia and North Carolina had caused more people to bounce checks, file for chapter 7 bankruptcy, and experience greater difficulty with lenders and debt collectors.
“I’d prefer to see us coordinate with the industry leaders and come up with a mutually agreed upon solution that they enforce within themselves,” he said.