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Time to protect consumers from predatory loans - The Galveston County Daily News : Guest Columns

November 27, 2014

Guest column Time to protect consumers from predatory loans

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Posted: Wednesday, March 5, 2014 12:00 am

We would like to congratulate the city of Houston for passing an ordinance to protect its residents from predatory payday and auto title loans, and we urge other cities in the Houston-Galveston area to do the same.

Last year the United Way of Greater Houston and Catholic Charities of the Archdiocese of Galveston-Houston successfully joined with faith community leaders and nonprofit assistance programs to urge the city of Houston to pass the local ordinance. 

These organizations are partnering again at 3 p.m. Thursday as Catholic Charities in Houston, 2900 Louisiana St., hosts a forum where Texas Faith for Fair Lending will hear from clients who have been directly impacted by payday and auto title lending.

Why should other cities in the area pass this ordinance?

Houston, Dallas, San Antonio, Austin and El Paso have all passed local ordinances to regulate payday and auto title loans. 

Now, lenders in big cities are sending customers from the regulated cities to their stores in neighboring communities, so it is crucial that those municipalities pass ordinances to protect consumers as well. 

In the Houston area, South Houston already has done so, and Missouri City has taken action as well.

The stories of payday and auto title loan borrowers — like those that will be heard Thursday at the Texas Faith for Fair Lending forum — well illustrate the need for immediate action by municipal officials.

In San Antonio, for example, a nonprofit organization described one of its many clients who found himself in trouble with a payday loan. 

A gentleman in his 70s, living only on his Social Security check, took out a payday loan to cover an unexpected medical bill. 

As often happens, he couldn’t pay off the loan and cover his other monthly expenses. Before long he had taken out multiple loans and was skipping meals so he could make loan payments.

The loans, which often have interest rates higher than 600 percent, are marketed as emergency two-week or one-month loans backed by the borrower’s next paycheck or car title. 

The truth is that the business model actually relies on giving customers loans they cannot pay back on time.

In fact, a recent study by the new Consumer Financial Protection Bureau found that nearly half of all payday loan customers have more than 10 refinances or new loans each year. Each time the customer refinances the loan or takes out a new one to pay off the debt, he or she pays a new round of high fees. 

In Texas, those fees are typically around $22 per $100 borrowed.

During the last legislative session, industry lobbyists blocked the reform bill we tried to pass. 

While the legislature is clearly at a stalemate on this issue, Texas cities are not.

The common-sense ordinance we recommend limits payments to 20 percent of the borrower’s monthly income, allows no more than three renewals, and establishes other protections to ensure customers aren’t caught in a cycle of debt.

To protect more consumers, we encourage all cities in the Houston-Galveston area and throughout the state of Texas to pass a payday and auto title lending reform ordinance.