Council urges action against payday loans Date: Thursday, April 29, 2010 firstname.lastname@example.org By Patty Montagno Staff Writer This is the second installment in a series of articles about the payday loan business. Several local payday lending offices were contacted regarding the article. Payday lending representatives declined to comment. In a unanimous and swift vote members of the Sachse City Council passed a resolution urging the Texas Governor and Texas State Legislature to take action concerning payday lenders and auto title lenders. The resolution was at the request of Mayor pro tem Bill Adams. Adams is actively speaking out against the payday loan industry. Prior to the resolution, council strengthened its zoning ordinance in an effort to limit payday loan establishments. The ordinance defines what those establishments are and where they can be located in the city. Payday lending, sometimes known as a cash advance or auto title loans, is defined as a small, short-term, high-interest loan that is intended to bridge the borrower’s cash-flow gap between pay periods. “These loans are secured by a borrower’s post-dated check or electronic access to a debit account,” he said. “If a borrower defaults, they incur both insufficient funds fees from the payday lender and overdraft fees from the bank. Average payday borrowers get back-to-back loans many times before they are able to pay the loan in full and end up paying many times the original loan amount.” Adams said the good idea of providing a short-term solution to the cash flow problems of working people has instead turned into a way for vultures to pick on the vulnerable. “To qualify for a payday loan borrowers need a checking account and a steady income,” he said. “There is no credit check, and the loan offer is not based on the borrower’s ability to repay. To get a loan, a borrower gives a payday lender a personal check with fees of $15 for every $100 borrowed.” Adams said in his opinion the old saying still holds true: “if it’s too good to be true ...” “The ugly reality is 91 percent of all payday loans are made to borrowers caught in a cycle of repeat borrowing, with five or more payday loans per year. In fact, only one percent of all payday loans go to one-time, emergency borrowers who pay off their loan within two weeks and don’t borrow again within a year,” he said. “Lured by convenience and seemingly easy money, more and more people are falling prey to the payday loans machine.” The resolution Adams said he was very pleased that the recent council resolution was passed so quickly. The resolution states that the citizens of Sachse are deeply concerned about harmful effects of payday and auto title lending practices in our community and elsewhere in the state of Texas. According to the resolution, in the state of Texas there are over 3,000 unlicensed and unregulated lending storefronts, making over $3 billion in high-cost loans to Texas families each year. The resolution also states that 15 states and the District of Columbia have adopted a 36 percent or lower annual percentage rate cap for those small loans, and the federal government has adopted a similar rate cap for payday and auto title loans to the military based on a Department of Defense finding that those loans, “undermine military readiness, harm the morale of troops and their families, and add to the cost of fielding an all-volunteer fighting force.” Adams said the point of the resolution was to urge the state and the governor to take action in the next regular session of the Legislature to enact laws that will: •Close the loophole in state law that allows payday, auto title, and other consumer loans to carry annual percentage rates upwards of 500 percent. •Provide a level playing field by requiring all lenders and brokers of payday, auto title, or other consumer loans to be licensed and to comply with the same standards and consumer protection laws of licensed lenders under Chapter 342 of the Texas Finance Code. •Create a system to collect consumer loan data from lenders and brokers of consumer loans to ensure that these outfits engage in fiscally sound lending that supports the well-being of our communities. City Attorney Joe Gorfida “DeSoto Mayor pro tem Carl Sherman has expressed interest but has not passed such a resolution,” Gorfida said. “They recently based an ordinance, similar to Sachse, that restricts them to certain zoning districts. I believe Lancaster has done the same.” City Manager Allen Barnes Barnes said while he is not as adamant as Adams about the subject, he is passionate about it. “Almost everyone at some time in their life has financial issues, and sometimes they can’t see the light at the end of the tunnel,” he said. “Those types of payday businesses take advantage of folks when the people are most vulnerable. The service fees can exceed the loan amounts for these short-term loans, and that is just not right. I am an advocate of limited government intervention in people’s lives, but there are times that the government needs to defend its most vulnerable citizens. From what I’ve seen I wonder how the companies and people who work in this industry sleep at night, I guess it’s by counting other people’s money.” State Rep. Jodie Laubenberg Laubenberg said she has supported Rep. Dan Flynn’s legislation in prior sessions that would bring about sensible oversight. “This interim, the House Committee on Pensions, Investments and Financial Services will study and make recommendations on this industry,” she said. “Hopefully, as a result of the interim study, we will see a successful outcome for both the borrowers and the lenders in the upcoming session. I really appreciate that the cities are now getting behind this effort.” Laubenberg said without a doubt, we can all bring better balance to this sector in the market through common sense solutions. Congressman Sam Johnson Johnson said he applauds Adams and the city for approving pro-active resolutions and ordinances to regulate the payday industry. “Bravo to community leaders for seeing a problem and taking care of it on the local level,” Johnson said. “That’s what good government is all about.” State Sen Bob Deuell “The Legislature has studied the practice of payday loans, and I would imagine legislation will be introduced on the topic in the next legislative session,” he said. “We want consumers to have choices, but we don’t want to enable predatory lending which can lead to some of the horror stories we’ve all heard about. I believe, at the very least, lenders should be required to fully inform borrowers regarding interest rates and fees so that people know what they are getting into from the outset.” Adams said putting an end to predatory payday lending in Texas and other states is going to require tougher legislation. Adams referred to a study commissioned by the North Carolina Commissioner of Banks which showed how families were faring after payday lenders left the state. The study explains that those families used a variety of other credit options to deal with a financial emergency, many of which were much cheaper than payday loans. In addition, the report sates, non-credit strategies such as negotiating a different payment date, putting off a purchase until payday, and budgeting were also used to smooth financial shortfalls. “This abundance of options is consistent with the payday lending industry’s own survey findings that less than 10 percent of payday borrowers reported no other credit alternatives,” Adams said. “Overall, the study finds that households do not miss payday lending and had a negative view of the product, thinking it harms more borrowers than it helps. Those who had been payday borrowers in the past were glad they no longer had the temptation of what they viewed as an expensive product that was easy to get into, but hard to get out of.” Payday loans - the solution To date, 15 states and the District of Columbia have implemented or enforced rate caps of around 36 percent. The cities of Richardson, Mesquite, San Antonio, Irving and Little Elm have passed local ordinances controlling the spread of predatory financial services in their communities. Adams and Sachse are gaining national attention for tackling the payday issue. He is quoted in the March issue of AOL Daily Finance magazine entitled “Costly Cash: In Texas, Towns Try Zoning Out Payday Lenders” by Pallavi Gogoi. Adams said he believes the time has come to address high-cost lending which is trapping more and more Texans in a destructive cycle of debt. “I would be willing to bet that if any of our elected state officials looked up and saw “Don Corleone Fast-Cash” or “Gotti Payday/Auto Title Loans” breaking ground near their neighborhoods that swift action would be taken. The sad thing is that under the credit service organization loophole, and such blatant usury, both would be perfectly legal and no different from what is out there now except for the names.” Adams said although he has the utmost respect for Texas’ elected officials in Austin, he realizes that ideological differences on many issues come into play. “There have been and will still be issues that scream for a bi-partisan solution, and if this is not one of them then something’s wrong,” he said. “I urge every voter to contact their elected officials concerning this industry. The only lobbyists that the people of the great state of Texas have is you.” Organizations supporting the stop payday abuse campaign include the Center for Public Policy Priorities, the NAACP, RAISE Texas and Texas Appleseed. For additional information log onto www.stoppaydayabuse.org.
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