Council OKs restricting where ‘payday lenders’ can do business

Council members took another big step forward in the regulation of controversial payday lending institutions at their meeting last week, unanimously approving the kind of geographic dispersal guidelines critics claim are needed to reduce dependency on the businesses in working-class communities.

Last August, Council voted to impose restrictions on the amount of money an individual could borrow from payday lending institutions and limit the number of times they would be allowed to refinance those loans.

Under the terms of the new ordinance, which amends the city Land Development Code, payday lenders will not be allowed within 1,000 feet of another credit-access business; within 200 feet of a property zoned or used for residential properties; within 500 feet of the rights-of-way of all of the highways in the city; or within the East Austin, Waterfront, or University Neighborhood overlay districts.

In addition, the law restricts new payday lending institutions to freestanding buildings that house no other businesses.

This last provision was the most significant during Thursday’s debate, both for supporters of the resolution and its detractors.

Speaking against the new guidelines, Deborah Reyes, vice president of governmental affairs at credit-access business Advance America, which has six locations in Austin, said the new provisions “go a little too far.” “We believe credit-access businesses are being single out in City Code,” she said.

Reyes took issue with the rationale that having credit-access businesses in strip malls or in the same structures as other businesses leads to people taking out loans lightly and without consideration of their financial circumstances.

“I would suggest that every customer makes a deliberate decision to borrow from credit access businesses,” Reyes said. “They have evaluated their alternatives and come to the conclusion that in their economic circumstances this makes sense. There are very specific requirements for getting a loan, and the documents required for us to access that credit are not generally the kind we carry around with us. So just walking by a strip mall center, seeing a credit-access business, you’re not going to be able to just walk in and walk out with money.”

But supporters of the measure said making payday-lending institutions less convenient will help cut down on their use in poorer communities and, consequently, limit the so-called “cycle of debt” consumer advocates say predatory lenders thrive on.

“The whole business model of predatory lending is based around the convenience factor,” said Joshua Houston, an attorney with Texas Impact, a grassroots religious group. “Making stores stand-alone stores and adding various restrictive zoning ordinances will decrease that convenience, thereby making predatory lending that much harder.”

Ann Baddour, a representative of nonprofit group Texas Apple Seed, agreed with Houston and took issue with Reyes’ contention that the free-standing building provision is onerous and unnecessary.

“It’s not an arbitrary provision,” Baddour said. “If these businesses were responsible lenders, if they were offering loans at reasonable prices, in compliance with the license lending requirements under Texas state law and under the usury caps in Texas, then it would be a totally different issue. But this industry has chosen to go around the license lending laws in our state. These businesses, if they don’t want to play by the rules and they don’t want to really be a support for the people and the community, then it’s our job to stem the proliferation.”

Payday loans are small loans designed to help cover expenses for a short period, usually about two weeks. Borrowers are expected to pay back the loan with interest. Anti-predatory-lending advocates say these interest rates are often outrageous – up to 400 percent – and that they are designed to keep poor and working-class people in debt. According to RAISE Texas, a $300 payday loan costs an average of $840 to pay back.

Council Member Bill Spelman, who has taken the lead on this issue, told In Fact Daily that geographic limitations and particularly the law’s free-standing provision are necessary if the city hopes to get a handle on the problem of predatory lending, a problem the state Legislature has not dealt with. Spelman said in particular he is concerned about the co-location of payday lenders and pawn shops, a situation, he said, that leads to people already in dire financial situations making quick decisions to buy things they can’t afford and going deep into debt as a consequence.

“(Payday lending) is banking on people’s optimism,” Spelman said. “People say to themselves, ‘I’ll have more money in two weeks or a month.’ But many of these people live so close to the margins that that isn’t true. They can’t pay it back. They find they have no more in the bank than they did two weeks ago, and then suddenly they’re trapped in this cycle of debt.”