Dallas Payday Loan Ordinance
What is the target goal?
Payday loans are small cash advances that typically have a two-week or month-long loan term and high interest rates and fees. Borrowers can renew the loan by paying the rates and fees, but they retain the same balance. There is no limit on how much payday lenders can charge customers in fees, but the federal Truth in Lending Act requires lenders to report fees as part of the interest on a loan.
In 2011, the city of Dallas led the state when it passed a landmark ordinance to restrict the most abusive payday lending practices. As of 2015, Houston, Austin, El Paso and San Antonio all have passed a local ordinance to limit these types of loans.
Payday loans often trap borrowers in a cycle of debt that undermines any opportunity to establish firm long-term financial footing. A report from the Center for Public Policy Priorities comparing 2012 and 2013 activity concluded that Texans were charged more fees and stayed in debt longer to payday and auto title lenders in 2013, even though Texans took out fewer loans that year.
What was the strategy in Dallas?
Dallas passed two ordinances in 2011 restricting payday lenders. One ordinance places limitations on where new storefronts can open in the city, and the other restricts the amount that payday lenders can lend and requires principal reduction if a loan is renewed. By mid-2015, twenty cities had followed suit by adopting the latter regulatory ordinance, which is referred to as a "unified payday ordinance."
Dallas' ordinance does not eliminate payday lenders, but instead restricts the loan amount that can be extended and the terms under which the loan must be repaid. Dallas also requires lenders to register with the city and comply with tougher zoning rules.
A similar ordinance in Houston limits payday loans to 20 percent of the borrower's gross monthly income. It limits loans to no more than four installments or three renewals and requires that the proceeds from each installment or renewal reduce the loan principal by 25 percent. The Houston ordinance also includes an important section that mandates financial education: "A credit access business shall provide a form...to each consumer seeking assistance in obtaining an extension of consumer credit which references non-profit agencies that provide financial education and training programs and agencies with cash assistance programs."
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Institute for Youth, Education, and Families
This post was last updated in June 2015