This is something I had been awaiting for a while. Here are the specifics.
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
This sounds OK to me. There’s no doubt that folks have a need for emergency loans–heck, I’ve been there as a college student awaiting the arrival of the student loan check with rent due a week before disbursement. And as a college student, there’s no doubt that there was an uneasy feeling that one may lose a crappy, yet running, vehicle.
That said, there’s also some responsibility on the part of the borrower, but I think this proposal provides for a good shot at fairness for all.
Senator Sylvia Garcia had this to say:
I applaud Mayor Parker and the Houston City Council for presenting a package of payday lending regulations to protect our citizens from unscrupulous payday lenders. The proposed package is modeled after an ordinance that was passed by the City of San Antonio and other major urban cities. I look forward to supporting Mayor Parker and the city council’s efforts to pass a Houston ordinance as quickly as possible.
So, let’s hope this gets passed in December.