Since the city’s new ordinance regulating payday and title lenders went into effect, area residents are reporting problems with their loans.
Chris Fralia went Friday, April 19, to make a payment on his payday loan at Ace Cash Express on University Drive. There were five or six other customers in the lobby, and they were upset. One woman was crying, Fralia said. It appeared they were being asked to redo their loans because of Denton’s new ordinance. The clerk told Fralia that he also had to sign a new agreement for his loan.
On March 19, the Denton City Council approved new rules that restricted short-term lenders in ways similar to ordinances passed recently in Austin, El Paso, Dallas and San Antonio. Denton modeled its ordinance after the one adopted in Dallas, which withstood a legal challenge earlier this year.
But the Consumer Service Alliance of Texas filed suit earlier this month on behalf of Denton businesses, seeking to block the new rules. No hearing has yet been scheduled on the matter.
Denton’s ordinance was written to apply only to those storefronts that are operating under laws that regulate “credit-access businesses,” typically payday and title lenders. It does not affect those operating exclusively as pawnshops or as consumer lenders licensed in another part of the Texas Finance Code. Deputy City Attorney John Knight has said previously it appeared many of the storefronts in the city would not be compliant with the new rules, which carry with them criminal penalties.
When Fralia saw the new terms from Ace, he got upset, too. He still owed $1,030 from what he originally borrowed. Now, Ace Cash Express was setting up that balance as a new loan, with repayment in four semi-monthly payments that included all the company’s fees. If he adhered to the schedule, he would pay Ace a total of $1,863.81 by June 14.
That comes to a 750.49 annual percentage rate.
He tried to refuse to sign the new papers, but the clerk said the company would consider such a refusal a breach of the current agreement. With that, they would debit his bank account the $1,863.81 immediately.
“I couldn’t let them do that,” Fralia said.
Officials at the company’s corporate headquarters in Irving did not return a call for comment.
Fralia knew the clerk, he said. He’d borrowed from Ace before, and he asked her to explain. She told him she didn’t understand what was happening either. She thought the city’s new ordinance was supposed to help people.
Fralia said he wanted to complain about the new terms, so the clerk handed him a piece of paper. He was surprised to see the names and telephone numbers of the Denton mayor and members of the City Council. She told him that if customers complained, she was instructed to provide the list to them.
“Then I thought, ‘OK, I’ll play that game,’” Fralia said, adding that he called all the numbers until he reached council member Jim Engelbrecht, even though he doesn’t live in District 3.
Engelbrecht said the latest development concerned him and asked Fralia if he could pass on the complaint to the city staff. Deputy City Attorney John Knight declined to comment on any specific situation, saying it could compromise an investigation.
Council member Kevin Roden said he wasn’t surprised to hear that people were having trouble, but he was skeptical that it was related to some kind of problem with the ordinance. The ordinance was written to apply to new loans, not existing customers, so it was unclear why existing customers were being told to redo their loans.
He said the council is mindful of unintended consequences when passing regulations that are heading into new ground.
The city could look into whether the ordinance forced the matter, “but I don’t think that’s the case here,” Roden said.
Instead, he said, knowing the business model for the lenders, he wondered whether some storefronts were taking advantage of their customers during the transition.
“I wouldn’t be surprised that they would resort to tactics that would scare people and do whatever they can to raise more revenue in the process,” Roden said.
Denton resident Rick Brand said he, too, was confronted with new terms when he went to make a $200 payment on his $833 title loan from Title Max on Fort Worth Drive. The clerk there told him he would have to rework his loan at a branch in Flower Mound, which meant he would have to drive to Flower Mound to make payments.
Officials at the company’s corporate headquarters in Savannah, Ga., did not return a call for comment.
Brand said he has been skeptical of the arrangement from the beginning but, when work was slow in January, he needed the money. It bothered him that with each $200 payment, very little was going to his principal. The first payment reduced his principal $67.56. And with each payment, he’d have to roll over into new loans that had increasingly higher interest rates.
He refused to sign the refinance papers, knowing he had a few days to cobble together the money to pay it all off before he would be in default.
But that didn’t stop the company from beginning collection tactics. He came home from work April 12 to find a notice from Title Max stuck in his door.
“Someone had come to my house,” Brand said.
Four days later, he paid off the balance.
How long Denton’s ordinance will be allowed to stand, the lawsuit notwithstanding, remains to be seen. Legislation aimed at reforming “credit-access businesses” is now with the Texas House.
When Senate Bill 1247 came to the floor Monday night, state Sen. John Carona, R-Dallas, brought it with six amendments. The senators attached seven more. The measures aim to curb the fees and other provisions that have trapped some borrowers in a cycle of debt with the lenders.
Locally, residents are encouraged by all the amendments, one of which restored a city’s ability to make stricter rules than are on the books with the state. On its Facebook page, Denton for Fair Lending, a group of concerned residents and nonprofits, has asked residents to call legislators to support the bill as amended.
Roden has been following the legislation, too, and has noticed that the financial backers of those lenders have pushed back hard on any kind of meaningful reform.
“As we’ve seen in Austin, too, it’s an all-out assault,” he said.
PEGGY HEINKEL-WOLFE can be reached at 940-566-6881 and via Twitter at @phwolfeDRC.