Bill Could Undo City Texas Payday Loan Ordinances at City Level

Inside Subprime: May 3, 2019

By Lindsay Frankel

Proposed legislation could void dozens of Texas cities that regulate Texas payday loans. HB 3899, introduced by Rep. Drew Springer, R-Muenster, would limit cities from enacting restrictions on businesses that operate across multiple cities in the state.

Texas, which has often been called the “Wild West” of payday lending, does little to regulate payday loans. There’s no limit to what lenders can charge, and it costs borrowers an average of $701 just to borrow $300 for five months, according to Pew Charitable Trusts. About 8 percent of Texans have taken out a payday loan, compared to only 5.5 percent of American consumers.

Though limits on interest rates can only be changed by the state legislature, 45 Texas cities have implemented ordinances that regulate payday and title loans in other ways.

Proponents of the new legislation contend that the state should be responsible for handling consumer issues so that restrictions on businesses impact all Texans the same way. But consumer advocates and faith groups disagree. “It’s a broadly preemptive bill that cuts cities off at the knees,” said Ann Baddour, director of the Fair Financial Services Project at Texas Appleseed.

The organization, in collaboration with around 60 other partners as a part of the Texas Fair Lending Alliance, urged cities to step in and pass a unified ordinance because state lawmakers weren’t addressing the issue of predatory lending in Texas. The ordinance was designed to keep Texans from becoming trapped in debt. That’s because payday loans in Texas are so expensive that many residents find them difficult to pay back in the time allotted, which leads to re-borrowing. The Consumer Financial Protection Bureau found that about 80 percent of payday loans get renewed or rolled over within a couple of weeks.

The unified ordinance sets standards for the affordability of payday and title loans by limiting the amount of the loan based on a borrower’s gross monthly income. It also mandates that each payment reduce the principal balance. Dallas was the first city to adopt the ordinance in 2011.

Without the ordinance, consumers would be left vulnerable to abusive lending practices in Texas. And HB 3899 isn’t the only legislation that could reverse progress with regards to regulating predatory lending activity. Another new bill seeks to rescind a 2001 decision that sale-leaseback lenders must abide by state laws regulating short term loans. The legislation makes way for exorbitantly high interest rates that could cause significant financial harm to vulnerable Texan families.

Learn more about payday loans, scams, and cash advances, and check out our city and state financial guides, including Texas, Arlington Payday Loans, Austin Payday Loans, Dallas Payday Loans, El Paso, Fort Worth, Houston, Irving, Killeen, McAllen, Plano, Round Rock, San Antonio, Tyler, Waco and more.