An Arlington City Council committee is examining potential regulations on payday lending and car title lending companies, the practices of which have caught the attention of some consumer advocates.
The focus is on two fronts: zoning regulations, including limits on where businesses can locate and the number of parking spaces they must provide, and regulations for business operations, primarily loan terms, such as the loan amount and the number of times it can be refinanced.
City Councilor Robert Rivera, chairman of the City Policy Committee, said in an interview that city staff will prepare recommendations for council when meetings resume after council recess in July. A final vote could take place in September.
Proponents say fast lenders are a lifeline for low-income people with poor credit and nowhere else to turn for emergency cash. But some consumer groups and other critics argue that lenders are preying on the poor with high late fees and refinancing fees that keep them in growing debt. Federal Consumer Financial Protection Bureau proposed new restrictions this spring on what Texas calls “credit access companies”. The legislature, despite several bills targeting them, refused to pass further restrictions during this year’s session.
According to a study presented to the Arlington board committee this week, at least 70 Arlington businesses can be categorized as payday lending establishments. The city has no land use or zoning classification for these businesses and no “special standards” for them, according to the staff report.
The new zoning restrictions would not apply to lenders already doing business in Arlington.
Education, not regulation
Ultimately, Rivera said, teaching consumers to watch their finances is the best way to solve the problem. Last year, he led a public seminar on the subject.
“It’s the idea of managing your wealth, managing your future and learning the skills to best manage a household,” Rivera said, stressing that the event did not involve any funding from the city. “At the end of the day, we have to educate our people so that they understand what they are getting into and make the best choices possible. “
Rivera said he does not give passes to small lenders and stressed that the insufficient fund fees, or “NSF,” charged by banks are “just as predatory as anyone in terms of the dollars that are sucked in. Household. “
Across the country, in 2013, 2.5 million people took out payday loans, each of which is typically several hundred dollars and secured by a post-dated check or electronic access to a bank account as collateral, according to the presentation. city staff. Auto title loans are much larger and use car titles as collateral.
Almost 380,000 auto title loan borrowers in Texas paid up to $ 360 million in fees in 2013. (This total does not include finance charges because the state does not track them.)
Tarrant County a hot spot
Tarrant County is particularly popular with payday lenders. Clusters of stores line the streets of Fort Worth south of Arlington to Haltom City. On East Lancaster Avenue, 11 stores are doing business. South Arlington had more than 55 locations along a 5-mile stretch between Interstate 20 and Interstate 30, according to 2012-13 records.
“The payday lender market has grown because of the demand from people,” Fort Worth Mayor Betsy Price said in February. “Businesses tend to appear around demand. “
More than 2,000 new breakdown and auto title storefronts have opened in Texas over the past six years, according to the Texas Municipal League, a city services organization that attributes the spread in part to the failure of “meaningful reforms.” To be adopted by the Legislative Assembly during this period.
If Arlington approves regulations on fast lender business operations, it will join a list of at least 25 cities that have taken similar action, according to a May 1 update from the Municipal League. On its website, the agency said it believed those cities had used a boilerplate ordinance it had crafted to help its members overcome legal challenges.
Rob Norcross, spokesperson for the Consumer Service Alliance, the group of 3,000 Texas lenders, said cities had better delay their orders until the Federal Bureau of Consumer Financial Protection releases its package. regulations at the end of this year or the beginning of next year.
End of March, the agency proposed regulations this would force payday lenders to ensure borrowers can afford repayment and to notify borrowers before debiting payments from their checking accounts.
They would also limit the number of loans 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 says often comes with fees. excessive.
Consumers often think payday loans will be easy money, then President Barack Obama said, “but the average borrower ends up in debt about 200 days a year,” typically paying more than $ 1,000 in interest and fees for a $ 500 loan. .
“We would be obliged to pursue them”
Norcross said critics were exaggerating the problem by focusing on a handful of the most desperate cases. Citing state data, he said, 50% of customers repay their loans on time and 88% pay off their debt on the fourth refinance.
“Ultimately for Arlington, even though these loans are small, they are complex policy issues with financially vulnerable citizens,” Norcross said. “I would encourage them to get input not only from consumer advocates, but also from industry and other experts, such as academics and economists.
“If they were doing something consistent with what other cities have done,” he added, “we should pursue them. ” (This month, the 2nd Fort Worth Court of Appeal sided with Denton in a lawsuit by Ace Cash Express against the city’s payday lenders order.)
Financing fees are complex because lenders offer different types of loans. In addition, the state does not impose a price cap. It also doesn’t tell payday lenders how much they can charge or how to structure the loans. The result: Virtually any rate or fee can be applied to a loan that is renewed.
In the Fort Worth-Arlington area, only Saginaw, Watauga and Flower Mound are restricting 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 pick up the problem again anytime soon. Price said in February that she was not interested.
“Who am I to say if you’re desperate you shouldn’t be able to get that loan?” ” she said.
This report includes material from the Star-Telegram archives.
This story was originally published June 19, 2015 11:47 a.m.