By Moses Leos III.
With extensive regulation now taking place in many major Texas cities, payday and car title loan establishments, also known as credit access businesses (CABs), are a major talking point among city council members and legislators alike.
Smaller cities such as Buda are now eyeing the idea of regulating these establishments, but watching as major cities battle litigation from payday loan groups. Buda is taking a “wait-and-see” mentality before taking any action.
Three CABs operate in Buda – Approved Money Center, Speedy Cash and EZ Loans. J.R. Gonzales, managing director of the Buda Chamber of Commerce, confirmed that none of the three are members of his organization.
So just how easy is it to get a loan from a CAB? For some businesses, all you need is an open bank account, a working phone and a steady source of income. At one CAB in Buda, lenders offer up to $3,000 for a payday loan, $25,000 for an auto title. How much money is dispersed depends on several factors. For payday loans, total income is the basis. A clear title and condition of a vehicle is required for auto loans. When paying it back, the company requires customers to pay the full amount, plus the interest, in full by the due date. This amount varies on how much was borrowed. If customers are unable to pay in full, they can “rollover,” or refinance their loan, paying only the fees and charges. That in turn moves the total amount into a new loan term. |
These types of companies offer loans up to a set amount, often determined by a customer’s income level. They do not require a credit check.
This can be helpful to individuals in need of fast cash between paychecks. When they repay the loan, however, some customers find themselves paying high interest rates in addition to the principal.
Critics, including city leaders in Buda, claim CABs are predatory lenders who continue the cycle of poverty among those least able to pay high fees and interest charges.
“[CABs] prey on desperate people that need quick money,” Buda Mayor Todd Ruge said.
How much will it cost?
On the loan disclosure document from Speedy Cash in Buda, for example, it shows a loan amount of $100 comes with a finance charge of $268.60 and a total payment of $368.60. That’s the $100 loan principle plus the finance charge.
The annual percentage rate (APR) on that $100 loan? It’s a whopping 574.65 percent.
Prior to 2011, payday loans had few or little restrictions in the state of Texas.
That changed in June 2011, when Texas Gov. Rick Perry signed into law House Bills 2592 and 2594 – both amending Chapter 393 of the Texas Finance Code.
The bills, which went into effect on Jan. 1, 2012, force CABs to disclose annual percentage rates (APR) for loans. They also must provide information on any applicable service fees. It also forces such companies to disclose language which states they are for short-term financial need.
What isn’t defined is a borrowing limit, or a cap on APRs. It provoked several cities, including Austin, to pass ordinances further regulating CABs.
That caught the attention of the Consumer Service Alliance of Texas (CSAT), which filed lawsuits on behalf of CABs. It claims cities cannot uphold their ordinances, saying local laws cannot surpass state law.
As larger cities fight regulation litigation battles, many CABs have trickled to outlying, smaller cities.
The idea of more payday lenders making their way to Buda was worrisome for councilmember Eileen Altmiller. She asked the city’s attorney to brief council on litigation status of CABs.
On Jan. 21, the council met in executive session with city attorney George Hyde to seek the advice regarding the matter.
Under Texas Local Government Code, private consultation between a city and its attorney can be done only during pending or contemplated litigation. The exception to the rule is where the municipality can seek counsel on matters conflicting with the open meetings act. However, only matters of litigation can be discussed.
Hyde said he briefed council on the status of regulation and litigation regarding CABs.
