Example Ordinance Disclaimer (Ordinance Link Below)
In response to the state legislature’s failure to adopt any substantive statewide regulation of credit access businesses, a handful of cities have adopted ordinances aimed at ending the cycle of debt and helping borrowers to be successful in paying back their loans. As of the spring of 2013, the cities that adopted ordinances were Austin, Balcones Heights, Dallas, Denton, El Paso, and San Antonio. There are likely to be more at the time of this publication. All of these cities – except for Balcones Heights – have been sued by the credit access business industry, with the industry claiming that the cities are preempted from regulating credit access businesses since the legislature gave the OCCC some authority to regulate in 2011. (Balcones Heights has suspended enforcement of its ordinance pending the outcome of the San Antonio lawsuit.)
When payday and auto title lenders argued before the legislature for preemption of all city ordinances regulating credit access businesses, chief among their policy arguments was the notion that it would be too administratively difficult to keep track of the different “patchwork of regulation” that exists from city to city. This argument falls flat in two ways. First, only six out of roughly 1,200 Texas cities have adopted ordinances. Second, the ordinances adopted by these six cities are all but identical in how they regulate the lending practices of credit access businesses. Key features of all six ordinances include the following provisions:
- A credit access business must apply for and receive a certificate of registration from the city.
- A credit access business must maintain complete records of all loans made by the business for at least three years and make the records available to the city for inspection upon request.
- The amount of a payday loan may not exceed 20 percent of the consumer’s gross monthly income.
- The amount of an auto title loan may not exceed the lesser of three percent of the consumer’s gross annual income or 70 percent of the retail value of the motor vehicle.
- Any loan from a credit access business that provides for repayment in installments may not be payable in more than four installments, and the proceeds from each installment must be used to repay at least 25 percent of the principal amount of the loan. No renewals or refinancing of installment-payment loans are permitted.
- Any loan from a credit access business that provides for a single lump sum repayment may not be refinanced or renewed more than three times, and the proceeds from each refinancing or renewal must be used to repay at least 25 percent of the principal amount of the loan.
- Any loan made to a consumer within seven days of a previous loan has been paid by the consumer constitutes a refinancing or renewal.
Cities contemplating the adoption of an ordinance regulating the lending practices of credit access businesses should consider adopting substantially similar regulations to those adopted by the six cities mentioned above. If Texas cities that wish to regulate in this area continue to adopt essentially uniform ordinances, credit access businesses will not be able to use the argument that city ordinances vary from city-to-city if they seek preemption legislation in 2015.
City officials should be aware that adoption of any ordinance regulating credit access businesses will likely cause stakeholders representing the payday and auto title lending industry to file a lawsuit.
Each city should consult with local legal counsel prior to adopting any ordinance. That is particularly true in this instance.