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									Council urges action against payday loans
Date: Thursday, April 29, 2010

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

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

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

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

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

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