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One suit dropped, another filed

Profile image for By Peggy Heinkel-Wolfe / Staff Writer
By Peggy Heinkel-Wolfe / Staff Writer

Short-term lender sues Denton after trade group drops its lawsuit

A trade group representing payday and title lenders dropped its lawsuit against the city of Denton just as one of those lenders, Ace Cash Express, filed its own.

The Consumer Service Alliance of Texas filed a notice of nonsuit in district court Friday, withdrawing its claim against the city’s new ordinance that regulates payday and title lenders. Meanwhile, Ace Cash Express filed its own suit against Denton on Friday afternoon, court documents show.

Attorneys for Ace Cash Express claim in the new lawsuit that the city exceeded its authority under the state constitution and that Denton’s ordinance likely will harm the company’s business.

According to court documents, attorneys said that Ace lost so much business in Dallas after that city passed an ordinance that the company had to close some stores. The company expects to have to close stores in Denton, too.

T. Ray Guy, attorney for Irving-based Ace Cash Express, declined to comment.

City Attorney Anita Burgess said she was aware the first suit had been dropped and the city was served with the second lawsuit Tuesday afternoon. She declined to comment further.

On March 19, the Denton City Council adopted an ordinance similar to ordinances passed in Austin, El Paso, Dallas and San Antonio restricting “credit-access businesses,” the legal description for payday and title lenders.

Denton’s new ordinance requires the businesses, primarily payday and title lenders, to set up a customer’s loan repayments in no more than four installments, each of which must pay down 25 percent of the loan amount. The city also limits the renewals of those loans meant to be repaid in a lump sum to three renewals. And the proceeds from each renewal must pay down at least 25 percent of the original loan.

The payday and title lenders also are limited in the amounts they can lend in Denton, depending on the value of what is pledged. For example, a cash advance that is guaranteed by a car title cannot exceed 70 percent of the vehicle’s value or 3 percent of the individual’s annual gross income — whichever is less. Other cash advances cannot exceed 20 percent of the borrower’s monthly gross income.

Denton modeled its ordinance after Dallas’ ordinance, which withstood a legal challenge from the alliance earlier this year. But on April 5 the alliance filed suit against Denton.

In its answer to the original lawsuit, the city of Denton questioned the alliance’s standing to sue, in part because it was not clear which businesses in Denton the alliance represented.

Representatives for the alliance did not return messages requesting comment.

Some critics have claimed lenders are operating under a loophole that allows storefronts to charge fees that make the cost of borrowing predatory. According to state reports on the payday and title lending industry, 70 percent of Texans are unable to repay their short-term loan during the original term. On average, it costs about $840 for the average Texan to repay a $300 loan.

The Texas Legislature failed to pass reform measures for credit-access businesses during its regular session. State House Rep. Mike Villarreal, D-San Antonio, pledged to continue to work with Texas cities to address reform at the local level.

This week, the Texas Municipal League published new Web pages with a sample ordinance and other resources for cities looking at regulating payday and title lenders in their corporate limits.

In their original petition, attorneys for Ace Cash Express told the court the company is willing to post a bond for a temporary injunction that would bar Denton from enforcing its ordinance. No hearing has been set in the case.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881 and via Twitter @phwolfeDRC.