That’s what came out of the presentation to Council on payday lending on Tuesday.
Houston leaders say they will wait to see whether the Legislature acts during its current session before voting on their proposal. Mayor Annise Parker has said the industry “cries out for regulation” and called the state’s failure to do so “disgraceful.”
Houston’s proposal would cap payday loans at 35 percent of the borrower’s gross monthly income for single-payment deals, which are intended to be paid back in a lump sum.
For multiple-payment loans, each installment would be capped at 25 percent of the borrower’s monthly income. Auto title loans could not exceed 6 percent of the borrower’s gross annual income or 70 percent of the car’s value, whichever is less.
The city’s proposal also would bar refinancing of multiple-payment loans. Single-payment payday loans could be refinanced no more than four times, and no more than six times for title loans. If a borrower cannot pay after the rollover maximum is reached, he must be offered a no-interest, no-fee payment plan with at least four installments.
Rob Norcross, of the Consumer Service Alliance of Texas, which represents all but 150 of the state’s 3,400 licensed payday and title lenders, said Houston’s proposed ordinance “is not perfect, but it’s a significant step in the right direction.” The group has agreed not to sue if the city adopts its ordinance largely as drafted, he said.
Consumer groups said the proposal is focused on what the industry could stomach, not what is best for the community.
They prefer the ordinance adopted by Dallas and other cities, which sets lower caps than the Houston proposal on the amount consumers can borrow, allows the plans to be refinanced fewer times, caps the number of installments that can be offered in multiple-payment deals, and requires the principal loan amount to be reduced by 25 percent with each refinancing or, on a multiple-payment deal, with each installment.
Allowing unlimited installments on multiple-payment deals, as the Houston draft does, is particularly problematic, said Texas Appleseed policy analyst Ann Baddour, since one such deal can contain the fees associated with 10 to 12 rollovers of a typical single-payment deal.
“The payday lenders are not likely to sue on this ordinance because it really doesn’t hurt very much,” said Mark Wawro, a Texas Appleseed board member. “It doesn’t address the cycle of debt. We want to see real change.”
This mirrors the comments I got on Tuesday’s post about the presentation. Clearly, a more comprehensive reform bill than what we got in 2011 is preferable to piecemeal action, and the story indicates that Sen. John Carona will be filing his own bill on payday lending soon. I would like the city to be prepared to take action on its own in the event that the Lege fails again, but I agree with Texas Appleseed that it would be better to follow in the path of cities that have already done this. Speaking of which, according to Texas Appleseed, the city of El Paso joined Austin, San Antonio, and Dallas in taking action to regulate payday lending in January, following the Dallas model. As for Dallas, the lawsuit filed against it by payday lenders over their ordinance was dismissed by a District Court judge on Tuesday, so if there’s a fear of being sued in Houston, this should help allay that.
Further reading, courtesy of Texas Appleseed: A 2012 Houston MSA fact sheet about payday and auto title loans; 2012 statewide data on same; and a copy of the proposed Houston ordinance, so that we all know what we’re arguing about. If nothing else, if Houston joins the other cities that have done this, it will be that much more pressure on the Lege to do something. It’s fine for Houston to give the Lege a chance to act first, but let’s be prepared to take the most effective action ourselves in case it’s needed. PDiddie has more.