Mayor Parker sure isn’t wasting any time on her last-term agenda. Next up on the list: the payday lending ordinance we’ve been waiting for.
With support from other major Texas cities and numerous advocacy groups, Mayor Annise Parker today unveiled proposed regulations for payday lending in Houston. The mayor’s plan establishes minimum business practices for payday lending institutions and mirrors ordinances previously adopted in Austin, Dallas, El Paso, San Antonio and several smaller Texas 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 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.”
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 $1200 or more.
Houston’s proposed ordinance would help alleviate this problem 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 three 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 nonprofits offering financial literacy and cash assistance
Mayor Parker’s recommendation is endorsed by the following members of the Houston Fair Lending Alliance:
Catholic Charities of the Archdiocese of Galveston-Houston
Covenant Community Capital
Christian Life Commission
Family Services of Greater Houston
Neighborhood Centers, Inc.
Skills for Living
Texas Catholic Conference
One Voice Texas
United Way of Greater Houston
Houston City Council will be briefed on the mayor’s proposal December 4, 2013. The first opportunity for a vote by council will be on December 11, 2013.
See here, here, and here for the background. Following the approach taken by other cities is a good idea, as it gives the city some cover from litigation. The Mayor has an impressive list of community supporters behind her – a press release from Sen. Sylvia Garcia praising the ordinance hit my inbox less than an hour after the Mayor’s press release – but it remains to be seen how the ordinance will be received by Council. I expect some pushback, but in the end I expect it to pass. After that, it will be a matter of hoping that neither the courts nor the Legislature do anything to screw it up, and hopefully someday moving the ball forward at the state level. Let’s get this passed by Council first and we’ll go from there. Stace and Texpatriate have more.