In an effort to protect both the poor and the financially unsavvy from predatory lending practices, Austin’s City Council met on Thursday to regulate and impose restrictions on how payday lenders can operate. Ellen Arnold of Arnold Public Affairs worked on this issue during the most recent legislative session to bring this problem to light and to regulate the practice statewide.
Payday and car title loan brokers typically market short-term, high-interest loans to clients who generally are unable to obtain credit elsewhere. The cash advances, which generally range from $100 to $1,000, are usually due in full, along with interest and fees, within two weeks of borrowing. If the client is unable to repay their debt in full and on time, they may extend their advance by paying additional fees. Fees added in the process often exceed the principal amount borrowed, creating a “cycle of debt” that is difficult to escape.
A car title loan operates in the same fashion; however, failure to pay in the allotted time period allows lenders to take possession of a client’s car.
Under the new regulations, which were proposed by Council member Bill Spelman, will require payday lenders to register with the city, cap the maximum cash advance amount—not to exceed more than 20% of the client’s gross monthly income, and restrict clients from refinancing a loan more than two times. Spelman will utilize the city’s zoning authority to monitor and restrict the number of payday lenders in an area. These establishments cannot be located within 1,000 feet of a lot containing another such lender, 200 feet from a residential lot or 500 feet from the rights of way on major roadways. Car title loan brokers must also cap their cash advances. Clients will not be able to borrow more than 3 percent of their gross annual income or 70 percent of the retail value of their vehicle, whichever is less.
While the proposed regulations does not address every concern with the short-term loan industry and does not solve the “cycle of debt” that is experienced by many clients, this is a step in the right direction to ensure financial regulation and stability.