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HomeMy WebLinkAboutItem 06 - Pay Day Lending MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: BRUNO RUMBELOW, CITY MANAGER 63 MEETING DATE: DECEMBER 5, 2017 SUBJECT: PAY DAY LENDING - PRESENTATION Shonda Schaefer, Executive Director and Stacy Pacholick, Director of Programs for GRACE will make a presentation about the concerns surrounding pay day lending establishments in Grapevine. BACKGROUND: GRACE, local churches and other organizations serving residents of Grapevine and the surrounding Metroplex are coming together to ask for a local ordinance to reduce the negative impact of pay day and auto-title lenders. Further, they have asked for time on your agenda to explain this issue. There are four establishments like this in Grapevine. Currently, there are 40 other Texas cities that have adopted ordinances to reduce the lending practices in their local communities. BR/sgp Dear Grapevine City Council .. I/1 \11 , As the leaders of the commle 11Iunity serving residents of the Metroplex, including Grapevine, we come together to ask you to take action by adopting an ordinance to ' GRACE reduce the negative impact of payday and auto-title lenders. "Giving as we have received We have heard over and over again that these loans hurt our clients and parishioners by to help those In need." exacerbating their already desperate financial circumstances through their exorbitant ' Don Johnston,President fees—generally more than 400%in APR. Frequently the high costs lead to further Whites Chapel United MethodistChurch financial distress for borrowers. In 2014,more than 845 cars were repossessed each Traci Bernard,RN week in Texas by auto title lenders. Loss of transportation can mean loss of Vice-President of Development Texas Health Hospital Southiake employment further compounding a desperate situation. Mark Moyer Vice-President uPrograms Crown of Life Lutheran Church The Office of Consumer Credit Commission reports that more than$345 million was Randy Robbins,M.D. loaned at the 496 payday and auto-title loan storefronts in the Dallas-Plano-Irving Vice-President of Capital Campaign Metropolitan Division in 2014. Borrowers paid more than$263 million in fees and Gateway Church $427,854,383 in refinances. Therefore,we can estimate that more than$2.7 million Carita Weaver Vice President of Facilities was loaned at Grapevine's four payday and auto-title loan locations,with i5 web works borrowers paying more than $2.1 million in fees. These locations divert critical Paul Bischler business tax revenue away from our city, at approximately$175,000 in sales tax Treasurer BNSF Railway revenue each year. Bree Vopelak Secretary/Vice-President of Human Resources To date,40 cities in Texas-including our neighboring cities of Dallas,Arlington, Hamilton Vopelak,P.C. John Elleson,Ex officio Mesquite,Flower Mound, Garland, Hurst, Euless, and Bedford-have adopted an The Church of Jesus Christ of Latter day Saints identical ordinance to provide basic protections to borrowers and limit the most Shonda Schaefer predatory practices of the payday and title loan industry. We see that payday and auto- GRACE Executive Director title lenders are directing customers to loan locations in Grapevine since the city does Larry Darlage,Ph.D. not yet have this ordinance. Therefore, it is of importance for your residents and the Crown of life Lutheran School h image of our community that the City of Grapevine adopts this ordinance. John Fletcher Fletcher Consulting Jennifer Hibbs Also, as people of faith,we believe usurious lending is a matter of morality and human City of Grapevine dignity. Lending designed to create profit by trapping people in never-ending loans Jeanne Michalski displays a stunning lack of respect for the humanity of the borrower and takes Community Representative advantage of unfair market competition. Mike Mills White's Chapel United Methodist Church Duff O'Dell Collectively we urge you to please protect our family and friends by adopting TML's Good Shepherd Catholic Community model payday ordinance. Please know that if you choose to make a stand,members of Karen Parrish the faith community will stand by you. Community Representative Tommy Pennington Sincerely, Tommy Pennington Realty Group Sean Shope First Financial Bank Faith in Texas and GRACE Becky St.John GCISD Board of Trustees John Terrell Shonda Schaefer COMM Mayor,City of Southlake Executive Director, GRACE, Grapevine, Texas Felix Vasquez,Jr. Hyphen Solutions,ICC Th,GRACE Mi.sinn 1• P.t,r.:.,4!)U. ..it )lGlr:.--IL' ?1 1411i 7( v.i AS cO].1r(411t11 c,i,A [r n...•... utc .t • 4 c Rev. John Mollet Senior Pastor,First United Methodist Church, Grapevine, Texas Ross Sawyers Lead Pastor, 121 Community Church, Grapevine, Texas Rev Dara Austin Pastor for Faithworks Mission and Outreach, White's Chapel UMC, Southlake, Texas Rev. Richard Eldredge, T.O.R. Pastor,Good Shepherd Catholic Community, Colleyville, Texas Scott Allen Senior Minister, Grapevine Church of Christ, Grapevine,Texas Dr. Rob Maupin Missions Pastor, Compass Christian Church, Colleyville, Texas Doug Page Senior Pastor, First Baptist Church, Grapevine,Texas Rabbi Charlie Cytron-Walker Rabbi, Congregation Beth Israel, Colleyville,Texas Rev. James Flynn Pastor, St. Francis of Assisi Catholic Church, Grapevine,Texas Clayton Reed Lead Pastor, Southlake Baptist Church, Southlake,Texas James Morris Pastor, Gateway Church, Southlake, Texas Rev. Wes Helm Lead Organizer, Faith in Texas Rev. Edwin Robinson Managing Director, Faith in Texas Dr. Lydia Bean Executive Director, Faith in Texas Dr. Terrence Autry Pastor, Christ Community Church, Richardson, Texas • :. Rev. Eric Folkerth Senior Pastor,Northaven United Methodist Church, Dallas, Texas Mahlon Hight Minister of Congregational Life,Northaven United Methodist Church, Dallas, Texas Rev. Dr. Owen K Ross Pastor, Christ's Foundry United Methodist Mission Rev. Dr. C. Dennis Williams Pastor, Smith Chapel African Methodist Episcopal Church Chair of Religious Studies,Paul Quinn College Rachel Triska Executive Director, Life in Deep Ellum Dr. Kimberly Allen Minister of Christian Education, Community Missionary Baptist Church Francene Adger Director of Assimilation and Community Relations, Community Missionary Baptist Church, DeSoto,Texas Rev. Charlie Brown Senior Pastor, The Crossing Baptist Church, Mesquite, Texas, DeSoto,Texas Rev. Marcus D. King Senior Pastor, Disciple Central Community Church,DeSoto, Texas Rev. Kwesi R. Kamau Lead Pastor, Impact Church DFW,Carrolton, Texas Rev.James Minor Senior Pastor, Glen Oaks UMC, Dallas, Texas Rev. Daniel Young Senior Pastor,Newsong Dallas, Richardson, Texas Rev. Becky Hensley, North Texas Conference UMC, Board of Church and Society Pastor Gregory L. Drake, Senior Pastor, Jubilee Community Church, Desoto, Texas Thomas C. Gibbons, Senior Pastor St. Barnabas Presbyterian Church, Richardson, Texas gni"NAiF M.,.,.n Pay Day&Title Lending Commonly Asked Questions Question 1: How do we know that the residents of the city of Grapevine are being affected by these businesses? There is a total of four Pay Day and Auto Title loan locations in the city of Grapevine. Last year,GRACE conducted a random survey for one month. Each individual/family who requested assistance from GRACE was asked whether they had ever applied for one of these loans. Of the people asked,over 20% had applied for and received a Pay Day loan. Of those individuals, 60%said the conditions of the loan affected their ability to pay for their basic needs including rent, utilities and food. In addition,all of them had rolled over the loan at least 2 times. Question 2: If these are lending institutions,why are they not required to follow best practices and regulations set by Texas legislation? Pay Day and Auto Title lenders operate as"credit access businesses"(CAB)in the state of Texas. This has been sighted as a loophole that protects them from being required to adhere to best practices that limit loan services. Basically they act as a loan "broker"and secure short-term loans through third-party lenders. "The lender charges an interest rate near 10%,the state constitutional usury cap,and the CAB charges unlimited fees to arrange service,and provide a letter of credit or guaranty to the third-party lender who funds the payday and auto title loans."1 Question 3: If these institutions did not exist,where would these families be able to turn for assistance? Pay Day and Auto Title"lenders" present themselves as a viable service to families in need. The proposed ordinance does not try to"close down"these institutions but simply regulate their practices and minimize the unethical practices that trap families and individuals in worse financial crisis than what brought them to these businesses in the first place. Many of the"lending"practices are not understood by the people applying for the "loans"and therefore are a surprise to them once they are realized. Question 4: Why wouldn't a city simply place a cap on the interest rate and fees that can be charged by these businesses? Only the State of Texas and the National Government have the power to dictate caps on fees/interest rates. Right now,there is not great movement from the State of Texas to cap these fees so the ordinances that have been passed by 40 Texas cities focus on areas that the city governments can regulate like "limiting the number of installments or rollovers, requiring payments to reduce the loan principal,and limiting loan amounts based on borrower income."2 Question 5: How many cities have passed similar ordinances? Currently,40 cities in the state of Texas have passed ordinances that regulate some of the lending practices of the CABs. To date, more than 9 million people live in a city that has passed basic consumer protection restrictions through similar ordinances...that is close to 1/3 of all people living in the state of Texas. Question 6: Will the courts uphold these ordinances if one of these business files a law suit against them? Several of these businesses have filed lawsuits against the ordinances placing regulations on them. They have all been supported in court including one that went through appeal to the Texas Supreme Court. The Texas Supreme Court refused to hear the case. (The city of Austin passed a different ordinance that tried to place other regulations that were deemed outside their legal jurisdiction. This one is NOT the same ordinance that was passed by other cities.) Question 7: Why do we not hear more about the negative effects associated with these loans? Pay Day and Auto Title businesses use guilt and shame to keep their"clients"from being upfront about the fact that they have received these loans. They ask questions like,"Why would you apply for a loan you could not repay?"or"Why did you not understand the conditions of receiving the money?". GRACE sometimes works with a family extensively before they admit that they have been trapped by the ongoing charges associated with this type of loan. We believe that even the 20%who admitted in our survey that they had taken out one of these loans is probably lower than the actual percentage because of the shame that our clients feel for getting involved in such a risky financial endeavor. 1 See: https://www.texasappleseed.org/sites/default/files/Payday-Auto-Title-Lending-Tx MktOv- Trends2012-2015Rev.pdf 2 See: https://www.texasappleseed.org/sites/default/files/Toolkit forCities SupplementalResources.pdf Texas Cities That Have Adopted the Unified Ordinance Updated May 2017 Dallas 2011 Austin 2011 San Antonio 2012 Universal City 2013 El Paso 2013 Houston 2013 South Houston 2013 Flower Mound 2013 Somerset 2013 Denton 2013 • Balcones Heights 2013 Bellaire 2014 Bryan 2014 College Station 2014 West University 2014 Garland 2014 Baytown 2014 Midland 2014 Amarillo 2014 Brownsville 2014 Willis 2014 Socorro 2014 Pharr 2014 Seguin 2014 Galveston 2015 Corpus Christi 2015 Arlington 2015 Temple 2015 Mesquite 2015 Waco 2016 Killeen 2016 Longview 2016 Harker Heights 2016 Euless 2016 Hurst 2016 Bedford 2016 San Angelo 2016 Cedar Hill 2016 Canyon 2017 DeSoto 2017 https://www.texasappleseed.org/texas-cities-have-adopted-unified-ordinance How Payday Loans Work Payday and car title loans are small loans with very high fees and interest, typically 300% annual percentage rate, though they average close to 500% APR in some states. Most of these loans are short-term and due in full on a borrower's next payday, though some are structured as longer-term loans payable in installments. The exorbitant fees charged by lenders make it almost impossible for financially vulnerable borrowers to pay off their loans. Before making a loan, legitimate lenders assess the ability of potential borrowers to repay it. Payday lenders do not. In fact, their business is built on making loans borrowers cannot afford to pay off, so that they will keep coming back and paying repeated fees on the same small amount of money borrowed. Studies from groups like the Center for Responsible Lending and Pew Charitable Trusts show that three quarters of payday lending volume is generated by "churned loans." The very short-term due date frequently forces borrowers to take out their next loan before payday. Here is how it works: 1. A typical borrower is a working parent who struggles to consistently pay the bills on time. 2. To obtain a payday loan, the borrower gives a payday lender a postdated personal check or an authorization for automatic withdrawal from the borrower's bank account. In return, she receives cash, minus the lender's fees. For example, with a $350 payday loan, a borrower pays an average fee of about $60 in fees and so gets about$290 in cash. 3. The lender holds the check or electronic debit authorization for a week or two, usually until the borrower's next payday. 4. At that time the loan is due in full, but most borrowers cannot afford to pay the loan back and still make it to the next payday. Payday lenders have used aggressive collection practices, sometimes threatening criminal charges for writing a bad check even when state law prohibits making such a threat. Under these pressures, most payday borrowers get caught in the debt trap. To avoid default, they pay another $60 to keep the same loan outstanding, or they pay the full $350 back, but immediately take out another payday loan, with another$60 fee. In either case, the borrower is paying $60 every two weeks to float a $290 advance —while never paying down the original amount of the principal. The borrower is stuck in a debt trap— paying new fees every two weeks just to keep an existing loan (or multiple loans) outstanding. 1.Not enough money to pay 1)111%. 4.Pay hack ?.Get payday entire loan plus loan. triple digit tees. .4.Re(eivse paycheck. FAITH IN TEXAS ORDINANCE NO. AN ORDINANCE OF THE CITY OF SETTING FORTH REGISTRATION REQUIRMENTS AND CREDIT EXTENSION GUIDELINES FOR CREDIT ACCESS BUSINESSES AND PROVIDING A PENALTY. WHEREAS, certain credit access businesses engage in abusive and predatory lending practices,offering easy money to those members of our community who are in a tight spot with onerous terms and fees;and WHEREAS, the practices of certain access businesses cause members of our community to become trapped in a cycle of short term, high interest loans resulting in large debt and huge payments;and WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who Borrows, Where they Borrow, and Why, (July 2012), wrote that "payday loans are sold as two-week credit products that provide fast cash,but borrowers are actually indebted for an average of five months per year."The report further noted that"on average, a borrower takes out eight loans of$375 each per year and spends $520 on interest;"and WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who Borrows, Where they Borrow, and Why, (July 2012), also noted: "How much borrowers spend on loans depends heavily on the fees permitted by their state. The same $500 storefront loan would generally cost about $55 in Florida, $75 in Nebraska, $87.50 in Alabama, and $100 in Texas, even if it were provided by the same national company in all those states. Previous research has found that lenders tend to charge the maximum permitted in a state;"and WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who Borrows, Where they Borrow, and Why, (July 2012), also stated that "the vast majority of borrowers use the loans on a long-term basis, not temporary one. Thus it seems that the payday loan industry is selling a product few people use as designed and that imposes debt that is consistently more costly and longer lasting than advertised;"and WHEREAS, the Community Financial Services Association of America (CFSA), the national trade association for companies that offer small dollar, short-term loans or payday advances includes the following in the "Member Best Practices" as listed on its interne site (http://cfsaa.com/cfsa-member-best-practices.aspx): "Members shall not allow customers to rollover a payday advance (the extension of an outstanding advance by payment of only a fee) unless expressly authorized by state law, but in such cases where authorized will limit rollovers to four or the state limit, whichever is less." The need for consumer understanding was also outlined on this website: "A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members (5) DEFERRED PRESENTMENT TRANSACTION has the meaning given that term in Section 393.601 of the Texas Finance Code. (6) DIRECTOR means the director of the department designated by the City Council, City Manager, or City Councilor City Manager's Designee, to enforce and administer this chapter. (7) EXTENSION OF CONSUMER CREDIT has the meaning given that term in Section 393.001 of the Texas Finance Code. (8) MOTOR VEHICLE TITLE LOAN has the meaning given that term in Section 393.601 of the Texas Finance Code. (9) PERSON means any individual,corporation,organization,partnership,association, financial institution,or any other legal entity. (10)REGISTRANT means a person issued a certificate of registration for a credit access business under this chapter and includes all owners and operators of the credit access business identified in the registration application filed under this chapter. (11) STATE LICENSE means a license to operate a credit access business issued by the Texas Consumer Credit Commissioner under Chapter 393, Subchapter G of the Texas Finance Code. .030-Violations; Penalty (a)A person who violates a provision of this chapter,or who fails to perform an act required of the person by this chapter,commits an offense.A person commits a separate offense for each and every violation relating to an extension of consumer credit, and for each day during which a violation is committed,permitted,or continued. (b) An offense under this chapter is punishable by a fine of not more than$500. (c) A culpable mental state is not required for the commission of an offense under this article and need not be proved. (d) The penalties provided for in Subsection(b) are in addition to any other remedies that the city may have under city ordinances and state law. .040-Defenses It is a defense to prosecution under this article that at the time of the alleged offense the person was not required to be licensed by the state as a credit access business under Chapter 393, Subchapter G, of the Texas Finance Code. (a) A certificate of registration expires on the earliest of: (1) One year after the date of issuance;or (2)The date of revocation, suspension,surrender, expiration without renewal,or other termination of the registrant's state license. (b) A certificate of registration may be renewed by making application in accordance with Section_.060. A registrant shall apply for renewal at least 30 days before the expiration of the registration. .090-Non-transferability. A certificate of registration for a credit access business is not transferable. .100-Maintenance of Records. (a) A credit access business shall maintain a complete set of records of all extensions of consumer credit arranged or obtained by the credit access business, which must include the following information: (1)The name and address of the consumer. (2)The principal amount of cash actually advanced. (3)The length of the extension of consumer credit, including the number of installments and renewals. (4)The fees charged by the credit access business to arrange or obtain an extension of consumer credit; and (5)The documentation used to establish a consumer's income under Section .110 of this ordinance. (b) A credit access business shall maintain a copy of each written agreement between the credit access business and a consumer evidencing an extension of a consumer credit (including,but not limited to,any refinancing or renewal granted to the consumer). (c)A credit access business shall maintain copies of all quarterly reports filed with the Texas Consumer Credit Commissioner under Section 393.627 of the Texas Finance Code. (d)The records required to be maintained by a credit access business under this section must be retained for at least three years and made available for inspection by the city upon request during the usual and customary business hours of the credit access business. (c) For every consumer who cannot read, every disclosure and notice required by law must be read to the consumers in its entirety in the consumer's language of preference,prior to the consumer's signature. .130-Referral to Consumer Credit Counseling. A credit access business shall provide a form, to be prescribed by the Director, 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. The form will also contain information regarding extensions of consumer credit, and must include the information required by .100(a)(1)-(5) of this ordinance specific to the loan agreement with the consumer. If the Director has prescribed a form in the consumer's language of preference,the form must be provided in the consumer's language of preference. Section 2. Should any article, section, part, paragraph, sentence, phrase, clause, or word of this ordinance,for any reason be held illegal, inoperative,or invalid,or if any exception to or limitation upon any general provision herein contained be held to be unconstitutional or invalid or ineffective,the remainder shall, nevertheless, stand effective and valid as if it had been enacted and ordained without the portion held to be illegal,inoperative,unconstitutional, invalid,or ineffective. Section 3.This ordinance shall take effect ,2013 ADOPTED THIS day of 2013. CITY OF ATTEST: Mayor City Clerk APPROVED AS TO FORM: City Attorney