Masako Melissa Hirsch interviewed YW's Becca Fritze about the dangers of Payday Lending for the Dallas Morning News in September.
The original article can be found here: http://www.dallasnews.com/news/metro/20140927-opponents-keeping-up-pressure-on-payday-lenders-in-texas.ece
With brightly colored storefronts and signs in English and Spanish, they advertise “Cash now!” and “Cash today!” There’s at least one on every block for several miles.
Despite this busy strip, the numbers of these types of stores in Dallas are on the decline.
Since the city passed a landmark ordinance regulating lenders three years ago, dozens of shops have closed. It’s just one way, city officials and consumer advocates said, that the ordinance has affected an industry that they say preys on low-income residents and traps them in a cycle of debt. Yet while they said most lenders are making efforts to comply, some companies have found ways to skirt the restrictions.
Now, the ordinance’s supporters are gearing up for the 2015 Texas legislative session, anticipating pushback from payday lending companies. Dallas City Council member Jerry Allen, who was a major force in passing the ordinance and continues to encourage other cities to join, said he expects companies will lobby for a weak law that would pre-empt local ordinances.
“My goal would be to not go backwards,” he said. “They’ve given up at the local level. They’re going to put a full-court press at the state.”
As the start of the session approaches, Allen said ordinance supporters will work to get more cities to pass ordinances and rally state legislators. At least 18 cities have passed ordinances similar to the one in Dallas.
The industry’s political clout stifled past efforts to create statewide reform.
Rob Norcross, spokesman for the Consumer Service Alliance of Texas, which represents many of the state’s short-term lenders, said city ordinances often leave customers paying more at one time or having to take out multiple loans.
“Some of these customers are in financial situations that don’t fit the narrow parameters of the ordinance,” he said.
But some change may be coming. The Consumer Financial Protection Bureau, the federal consumer watchdog, is developing rules to regulate the industry. In July, it fined Irving-based ACE Cash Express $10 million for what it described as predatory practices. It also took actions against Fort Worth-based Cash America last November.
Such changes could only help the city regulations, ordinance supporters said.
State and federal laws “are stronger because they come across the board. It doesn’t undermine the benefit of what the cities are doing. It would just make it that much better,” said Ann Baddour, senior policy analyst for Texas Appleseed, an advocate for poor residents.
For Sandra Johnson of Irving, a recent payday loan started with a high electricity bill.
Johnson, a receptionist, said money can be tight after rent, bills and food. An unexpected higher bill took her budget over the edge.
She was already paying off other loans. A car-title loan helped her daughter who was out of work. Another payday loan helped when she had surgery.
The loans are easy to get, she said. Paying the high interest, however, was a struggle.
“I understand that when I get a loan, I have to pay it back,” she said. “But when it’s gotten to the point where you have to pay it back or you don’t eat, it makes it hard.”
Marketed as a quick fix to help cover expenses until a person’s next paycheck, the loans often come with costly fees and high interest rates that make it difficult to pay them off.
Consequently, 14 states and Washington, D.C., have banned payday loan stores. But efforts in Texas to rein in the industry have largely failed.
In the past decade, payday and car-title loan companies have used a loophole in state law that allows them to operate without interest rate limits. As a result, a payday loan for $300 may end up costing about $701 — the highest rate in the country, according to an analysis by Pew Charitable Trusts.
In 2011, religious and community groups advocated for state legislation that would limit some of these practices. Ultimately, they were only able to require businesses to be licensed with the state, submit loan data and provide detailed cost disclosures.
The Dallas City Council was already discussing its own ways to regulate the industry. In May 2011, it passed an ordinance that limited where payday loan and car-title companies could open. That June, it passed another ordinance that placed restrictions on actual loans.
Interest limits were out of the city’s power. But the ordinance restricted the amount a person could take out based on income or a car’s value. It also limited renewals and required minimum payments toward the principal.
Within weeks, the Consumer Service Alliance of Texas and several lenders sued Dallas, arguing that the ordinance conflicted with state law and was intended to put lenders out of business. In May, the Texas 5th District Court of Appeals ruled in the city’s favor and said Dallas is immune from a lawsuit filed by payday lenders.
By then, other cities had joined Dallas. Through efforts by Allen and religious and community groups, many of the state’s largest cities — including Austin, Houston, San Antonio and El Paso — passed similar ordinances.
In North Texas, Denton, Flower Mound and Garland enacted ordinances, while several other cities implemented zoning ordinances.
The state doesn’t release specific loan data by cities. But a comparison of licensed stores in Dallas from April 2012, shortly after 2011 state and city regulations went into effect, and July 2014 shows that about a quarter of stores have closed.
The state’s Office of Consumer Credit Commissioner, which oversees the companies, only maintains a current list of store licenses. Texas Appleseed, which regularly requests the data, provided the 2012 list.
In 2012, Dallas had 241 payday and car title loan stores — collectively called Credit Access Businesses in Texas. As of Sept. 18, there were 177 — about a 27 percent decline.
Many of the companies doing business in Dallas closed stores during that time.
In its 2013 annual report, Cash America International said that it closed 36 stores in Texas primarily because city ordinances had reduced the profitability and volume of short-term loans. The company closed three stores in Dallas.
EZCORP also said in its most recent quarterly report that it closed stores as a result of city ordinances.
Multiple calls to companies operating in Dallas were not returned.
But Norcross, the industry representative, said his group projects 46 more stores will close in Dallas by the end of 2014. The ordinance, he said, doesn’t leave companies with much flexibility. With loans limited to four payments, each payment often ends up being too large for customers, he said. It also doesn’t address the differences that come with each loan type.
“It’s a one-size-fits-all approach that is incomplete,” he said.
The time for the group to challenge the Dallas appeals ruling has run out. The group or a lender may be able to refile the lawsuit if a lender gets fined under the ordinance, Norcross said.
Companies have found ways around the ordinance, consumer advocates said.
The Anti-Poverty Coalition of Greater Dallas has been sending volunteers to stores to see if they are complying with the regulations.
Last October, Becca Fritze, senior program manager of financial empowerment at the YWCA, went to a store and asked what would happen if she couldn’t pay off the loan within four payments. After her colleagues asked the same question, lenders directed them online.
“For me, it was that they said, ‘Oh, don’t worry. We’ll just refer you to a store outside of Dallas,’” she said.
Norcross said that such interactions might come from a desire not to lose customers. “If a customer says, ‘Look, I’ve got a problem here. What am I going to do?’ they’re going to try to help them out,” he said.
Baddour, of Texas Appleseed, said some companies also have offered what they describe as single-payment loans that end up having multiple fees.
More enforcement, she said, will help close such potential loopholes.
Dallas began inspecting businesses in May 2013. Since then, it has inspected 87 locations, conducted six examinations and issued 34 notices of violation, said assistant city attorney Maureen Milligan. One lender received four criminal citations.
The most common violations have been that lenders didn’t have proper documentation for an applicant’s income or car value, she said.
Most of the companies, however, have been willing to comply, she said.
Statewide, lenders have found areas to grow. While Dallas has fewer stores, the numbers across Texas have stayed around 3,300. In North Texas, some cities without ordinances have more stores than in 2012.
Although the number of new loans and refinances dropped last year, the industry had more consumers, according to the Center for Public Policy Priorities’ analysis of industry filings with the state. The fees charged to customers also increased by 12 percent. The Austin-based center is a nonpartisan nonprofit that pushes for public policies to help low- and moderate-income Texans.
Online loans also seem to be growing. Many lenders offer loans through their websites. Consumer advocates describe that as a way to avoid regulation.
As of now, the Dallas ordinance’s application to online loans is only hypothetical, said first assistant city attorney Chris Bowers. The city attorney’s office hasn’t received any borrower complaints about online loans or had a lender try to argue that one was issued outside of city limits because a portion of it was online, he said.
“It will depend on the facts,” he said. “But the mere fact that they’re touching a computer does not insulate them from the ordinance.”
Ultimately, a statewide law is needed, consumer advocates said.
“Having something comprehensive at the state level would potentially prevent operators from setting up shops just outside the jurisdictions of some of these ordinances,” said Oliver Bernstein, spokesman for the Center for Public Policy Priorities.
Yet laws can only go so far without alternative financial solutions, Fritze of the YWCA said.
“You can kind of put those laws in place, but you still need an alternative product. There aren’t a lot of products out there,” she said.
Some alternatives are in the pipeline. BCL of Texas, for example, is working to bring the Community Loan Center program, a pilot program in Brownsville, to Dallas and Austin by next year. The program would allow employers to provide loans to their employees at an interest rate capped at 18 percent.
Meanwhile, Fritze meets regularly with Johnson for financial counseling sessions. After she pays off her current loans, Johnson said, she won’t take out any more.
The sessions, Johnson said, “have really taught me these life goals about what it takes to make it.”
Overall, the ordinances have raised awareness about the issue and about financial education, supporters said.
Allen said the ordinance also helps encourage economic development.
“If I was corporate America, I would read that as a positive thing that Dallas is doing,” he said. “That’s the image that you want to have.”