With new zoning rules for payday and title lenders, Pilot Point this week became the 10th Texas city to enact land-use regulations as a way to rein in predatory lending.
The ordinance was the last major piece of city business for outgoing Mayor Pete Hollar, who presided over the vote Monday night before handing the gavel to Shea Dane Patterson, who ran unopposed in the May 10 election.
Hollar told the crowd in the council chambers — many were there to see Patterson and two new council members sworn in — that the city had been working on the measure for some time.
“These predatory lenders are a burden on many people,” Hollar said.
There aren’t any credit-access businesses, as they are known to regulators, currently in Pilot Point, according to City Secretary Alice Holloway. Hollar told the crowd that the city was hoping to get out ahead of the problem. No one spoke at either the City Council’s public hearing Monday night or at a previous public hearing held by the city’s Planning and Zoning Commission.
The council added three amendments to its code of ordinances for anyone considering bringing such a business to this northeastern Denton County city of 4,000. Pilot Point has defined and restricted the businesses to certain commercial districts with a special-use permit. In addition, each credit-access business must be 2,000 feet away from any other credit-access business.
With the new rules, Pilot Point joins a number of other North Texas cities in restricting the businesses through zoning, including nearby Little Elm. According to the Texas Municipal League, as of April, nine cities statewide have restricted the businesses this way. Fifteen other Texas cities have adopted ordinances that regulate the practices of credit-access businesses, which have found ways around longstanding Texas laws that regulate consumer creditors and, with their fee structure, have trapped people in a cycle of debt. A Denton Record-Chronicle investigation last year found local residents who, through payday lenders, inadvertently became entangled in debt that they could not pay off.
In March 2013, when Denton passed its ordinance that limits the loan installments and other terms, the city had about 39 small lenders, most clustered near the poorest neighborhoods.
Since Dallas, San Antonio, El Paso and Denton adopted ordinances that regulate the business practices for such lending, the Texas Municipal League has put together information and resources to help other cities interested in better regulating the credit-access businesses in their community.
The push comes after the Texas Legislature failed to pass any meaningful reform during its regular session last year. Longtime state Sen. John Carona, R-Dallas, sponsored the ill-fated legislation. He was defeated in the Republican primary by Don Huffines.
The Consumer Service Alliance of Texas, a trade group, sued Dallas after the city adopted its ordinance regulating business practices. The ordinance was upheld in district court, but the alliance appealed the decision. The 5th Court of Appeals heard oral arguments in that case in March.
The alliance also sued San Antonio and Denton after those cities adopted their ordinances. The San Antonio case is pending in a Bexar County district court. The Denton case was dismissed. Soon after, Ace Cash Express sued Denton over the ordinance.
A Denton district judge ruled in April that the court lacked jurisdiction in the case. Attorneys for Ace wrote the district judge a letter stating that recent changes to the city’s ordinance showed the court may well have had jurisdiction. The company and its attorneys filed notice this month that they intend to appeal the decision to the 2nd Court of Appeals.
Title Max sued the city of Austin over its ordinance, and that case is pending in a Travis County district court. Meanwhile, a Highland Village law firm filed a class-action lawsuit in a Denton district court on behalf of several local Title Max customers; that case has since been moved to federal court.
Last week, the attorneys filed motions in that case that take another step toward certifying the suit as a class-action. A hearing is scheduled for the end of this month.
According to court documents, there could be as many as 100,000 Texans who were subject to the company’s practices, which the plaintiffs claim are illegal and deceptive, keeping customers in the dark about the actual cost of borrowing against the title to their vehicles. In its pleadings, Title Max says it provides the financial disclosures required by law and has done nothing wrong.
In 2012, auto title lenders took possession of about 35,000 cars from Texans who came to them for a cash loan under terms that would be illegal in dozens of other states, according to Texas Fair Lending Alliance, a nonprofit advocacy group. In 2013, that rose to 37,649 cars and trucks, or about 725 vehicles per week. In all, about 9.9 percent of borrowers ended up losing their vehicle to a title lender last year.
Advocates for reform have called for an interim legislative committee to address payday and title lending issues, but no sessions have been scheduled. The matter was not among the many official interim charges to the Legislature by the lieutenant governor.
However, according to Ann Baddour, of public interest law center Texas Appleseed, a hearing this week by the House Investments and Financial Services Committee may see some talk about the issue, even though it’s not officially on the agenda.
“We plan to testify on issues connected with the need for payday lending reform, and I expect others will too,” Baddour said via email.
PEGGY HEINKEL-WOLFE can be reached at 940-566-6881 and via Twitter at @phwolfeDRC.