In dozens of Texas cities, payday lenders face enhanced restrictions on how much they can charge borrowers. Past efforts to translate those individual city ordinances into a statewide policy have failed.
This year, some state lawmakers are pushing for the opposite outcome: by passing measures that would either roll back those local ordinances or give payday and auto title lenders the power to take cities to court over ordinances they don't like.
Under either proposal, critics predict Texas would effectively return to a uniform statewide policy that perpetuates a cycle of debt for millions of Texans.
“The people that are in these predatory loans don’t know what they’re getting themselves into,” said Matt Pogor of the Society of St. Vincent De Paul – Diocesan Council of Austin, a nonprofit that, among other services, helps borrowers get out of payday loan debt. “They get these loans really quick, in less than 30 minutes.”
Right now, the state caps payday and auto title loan periods to six months. Loans are often approved for periods of two weeks or one month, with average annual percentage rates of 454 percent, according to a 2014 Pew Charitable Trusts study.
These rates reflect the sum total of fees, interest and principal a borrower would have to pay over a one-year period; according to the same Pew study, it costs $70 to borrow $300 in a two-week pay period in Texas.
Senate Bill 1530 from State Sen. Craig Estes, R-Wichita Falls, would nullify all city ordinances related to payday and auto title lenders. Over 40 Texas cities have passed ordinances restricting the activities of those companies, according to the Texas Municipal League. Most of those local ordinances restrict lenders to rolling a loan over a maximum of three times and require loans to be paid off in four installments.
Supporters of the bill, including the Consumer Service Alliance of Texas, which represents large companies such as ACE Cash Express, Speedy Cash and Community Loans of America, say it would ensure regulation is uniformly and fairly enforced across the state.
State Rep. Giovanni Capriglione, a Southlake Republican who authored an identical version of the bill in the House, said the goal was to reduce the total cost of these loans by removing regulatory burdens. He also said the local ordinances have not worked.
“That’s what the other 1,172 cities are saying ... If it’s difficult, people can go into a car and drive somewhere else,” Capriglione said. “They’re basically telling people who don’t have access to capital to get into a car and go somewhere else. That’s the most unfortunate position anyone can take when trying to help people.”
Critics of the bill insist local regulations have curbed debt for people who take out payday loans. Nonprofit advocacy group Texas Appleseed has been working on payday and auto title lending reform alongside cities, nonprofits and faith-based organizations since the first local ordinance passed in Dallas in 2011. Faith leaders have been integral to establishing local ordinances regulating the payday industry, Ann Baddour said. As director of the Fair Financial Services Project at Texas Appleseed, she helps cities implement local payday lending regulations.
“These ordinances passed in at least 42 cities through incredible local efforts from faith leaders, city leaders, nonprofits and some in the business community,” Baddour said. “A lot of businesses saw how these loans affected their employees. Some bought their employees cars because they lost theirs to auto title loans.”
Rob Norcross, a spokesman for Consumer Service Alliance of Texas, agreed with Capriglione’s assessment that local ordinances were put forward with good intentions but have been ineffective.
“We passed an ordinance that makes customers drive to the next city, or forces people to lie and get two loans from two different companies or they go on the internet,” Norcross said. He pointed to Dallas' six-year-old ordinance, which he said hasn't led to a single Consumer Service Alliance company being fined for violating the ordinance.
“If you’re going to pass an ordinance, do it," Norcross said. "Don’t just tell the newspaper you did it and tell all the advocates you did it and turn around and not do anything about it.”
Stephanie Mace, senior director of public policy at United Way of Metropolitan Dallas, said the number of companies violating a local ordinance misses the point.
"The goal is not to close down businesses," Mace said. "The goal is to make sure borrowers and lenders are successful in these transactions and that borrowers can take out a loan and be able to pay back a loan they take out."
A separate bill from state Sen. Don Huffines, R-Dallas, would allow owners of state licensed business to sue local governments over regulatory actions they deem to adversely affect them. Huffines said Senate Bill 2178 would allow small businesses and workers to have their day in court.
“As you know, economic liberty is just as important as personal liberty,” Huffines said. “These ordinances also layer on additional cost. The purpose of this bill is to provide judicial relief for licensees. Texans should have the freedom to run their business without onerous regulations.”
If Huffines' measure becomes law, critics predict payday ordinances around the state will be targeted via lawsuits. Though a representative from the Texas Catholics Conference of Bishops — one of the most vocal advocates for payday lending reform — said the organization would withdraw its opposition if the bill were tailored to exempt payday and auto title lending businesses, Huffines said that would be unfair.
"To carve out certain occupations or industries from the bill would be a disservice to economic liberty and free markets," Huffines said in a statement. "Consumers and market forces will provide better and more workable solutions than government regulations ever will. I will remain consistent & steadfast in my support for economic liberty."
The Senate Business & Commerce Committee heard public testimony Tuesday on both SB 1530 and Senate Bill 2178. The committee left both bills pending.
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Disclosure: The Texas Municipal League and Texas Appleseed have been financial supporters of The Texas Tribune. A complete list of Tribune donors and sponsors is available here.