Payday Lending. City Council Meeting September 1, 2015

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Benedict Perkins
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1 Payday Lending City Council Meeting September 1, 2015

2 Background

3 Payday Loans Small cash advances, typically $300 to $500, made for a short period of time Loans are secured by a post-dated check or electronic access to a bank account as collateral Intended to hold customer over until the next payday Auto-title loans Similar to payday loans but loan amounts are larger Car title used as collateral

4 Payday Loans Demand for affordable credit has increased Concerns related to payday lending businesses: impact on neighborhoods and commercial corridors where there is a concentration of this business type impact on the cycle of indebtedness of consumers, particularly low-income residents

5 Actions by Texas Legislature State Legislature has attempted to address in past three sessions In 2011, Governor Perry signed H.B requiring licensing and registration of payday lenders and instituted reporting requirements The Texas Office of Consumer Credit Commissioner oversees licensing produces and releases quarterly and annual reports about business transactions

6 Actions by Cities As of August 2015, 15 cities have adopted land use regulations governing payday and auto title lenders Belton Farmers Branch Missouri City Brownsville Garland Richardson Bryan Irving Sachse Corinth Little Elm Saginaw Dallas Mesquite Watauga Source: Texas Municipal League

7 Actions by Cities As of August 2015, 26 cities have adopted business regulations governing payday and auto title lenders Austin Corpus Christi Midland Amarillo Dallas San Antonio Angleton Denton Seguin Balcones Heights Dickinson Somerset Baytown El Paso South Houston Bellaire Flower Mound Universal City Bryan Galveston West University Place Brownsville Garland Willis College Station Houston Source: Texas Municipal League

8 Actions by Cities, cont d. Lawsuits over business regulation ordinances adopted by Dallas and Denton Dallas lawsuit dismissed in May 2014 Court did not determine constitutionality of regulations Court held that ordinance could be contested in municipal court when prosecuted for a violation A municipal court case challenging the ordinance s business regulations has not yet been reported Denton lawsuit dismissed in June 2015 Court did not determine constitutionality of regulations But, case likely to be appealed to Texas Supreme Court Constitutional issues raised that could be decided are: if the ordinance s business regulations are preempted by state law, violate due process and impair existing contracts/loans

9 Arlington Background Council Briefings - June 2012 and April 2015 Municipal Policy Committee - June and August 2015 Land use regulations Business practice regulations

10 Arlington Background, cont d. Today, at least 70 businesses that can be categorized as payday lending businesses No specific land use classification for payday lending establishments Unified Development Code does not provide any special standards for this use No regulations for business operations

11 Land Use Regulations

12 Proposed Land Use Regulations Add a new definition for Alternative Financial Establishment check cashing, payday advance/loan, money transfer, or car title loan business Car title loan services within a dealership may be allowed as an accessory use to a Car dealership Prohibited in the Entertainment District (EDO) and Downtown Neighborhood (DNO) Overlay Districts Only allowed with the approval of a Specific Use Permit (SUP) in non-residential zoning districts

13 Proposed Land Use Regulations, cont d. The SUP will also comply with the following conditions: As a standalone use in a building (and not in multi-tenant centers) The lot shall not be within: 1,000 feet of any other lot with alternative financial establishment; 200 feet of a lot zoned or used for residential purposes; and 500 feet of a controlled access freeways (I-30, I-20, SH 360, and US 287 Hwy)

14 Business Regulations

15 TML Model Ordinance TML model ordinance for business operations includes the following provisions: Limiting loans to 20% of gross monthly income Limited auto title loans to the lesser of 3% of gross annual income or 70% of retail car value Limiting repayment to 4 installments with each repaying at least 25% of principal Prohibiting renewals or refinancing of installment-payment loans City registration Maintaining loan records for a minimum of 3 years Violation or infractions fined up to $500 each

16 TML Model Ordinance, cont d. Other provisions, which some cities have omitted, are the following requirements: If consumer is non-english speaker, loan agreements must be translated into the language of preference If consumer is non-english speaker and unable to read, loan agreements must be read, in language of preference A list of non-profit groups that offer consumer credit counseling provided to consumers Houston, San Antonio, and El Paso include both provisions Austin includes credit counseling provision Dallas and Denton do not include either provision

17 Proposed Federal Regulations Consumer Financial Protection Bureau released proposed rules on March 26 Exclusively focused on business practices, not land use Small Business Review Panel Field Hearings Proposed rules scheduled to be released fall of day comment period, followed by agency review, then publication of final rules At least a 12-month process

18 Comparison of TML Model Ordinance & Proposed Federal Regulations Type of Regulation TML Model Ordinance City certificate of registration Yes No Requirement that consumer understand Yes No agreement CFPB Proposed Regulations Referral to consumer credit counseling Yes No Specific limitations on amount of cash advanced Yes No, but lender must verify ability to repay; subject to certain exceptions of abilityto-repay determination Specific amount/percentage of payments credited toward loan principal Yes, 25% No, subject to exceptions of ability-to-repay determination

19 Comparison of TML Model Ordinance & Proposed Federal Regulations Type of Regulation TML Model Ordinance CFPB Proposed Regulations Determine consumer s ability to repay No Yes loan Limitation on number of loans made No Yes, 3 in sequence, subject to limitations Limitation on time that must elapse No Yes, 60 days before making new loans, following 3 loans in sequence Requirement to notify consumer before No Yes, 3 days prior accessing bank accounts for collection Limitation on unsuccessful withdrawal No Yes, limited to 2 attempts causing insufficient fund fees Exceptions to ability-to-repay determination on subsequent loans, with consumer protections No Yes

20 Comparison of TML Model Ordinance & Proposed Federal Regulations Type of Regulation TML Model Ordinance Maintain certain records of loans Yes Yes Determine consumer s income Yes Yes CFPB Proposed Regulations Specific limitations on number of installments, refinancing, renewals Yes Yes, for certain longer term loans

21 Options Move forward with both tracks land use regulations business regulations Move forward with land use track only Move forward with both tracks but include a 60 day review trigger upon implementation of the federal rules for business regulations

22 Discussion

Legislative Session Wrap up: Payday and Auto title Lending in Texas

Legislative Session Wrap up: Payday and Auto title Lending in Texas Agenda Overview State of Texas Houston Payday and Auto Title Loans They are great Right??? Unbanked and Underbanked in Houston 12.8%