Many parts of southern Dallas have more storefront payday lenders than banks or grocery stores. That’s a problematic picture that needs to change. Too often, payday lenders take advantage of consumers who don’t understand what they are getting into: high-interest-rate loans that mire borrowers in massive debt.
To its credit, Dallas has been one of a handful of Texas cities to fight back against payday lenders, but state and federal officials also can help. That’s why we are pleased to see the Consumer Financial Protection Bureau, a newly formed federal regulatory agency, has joined the fight.
The bureau is compiling complaints from consumers across the nation, and we hope the findings will be the basis of tough national rules and serious enforcement action against an industry that continues to elude meaningful oversight in too many cities and states.
Dallas restricts the loan amount that can be extended and the terms under which the loan must be repaid. It also requires lenders to register with the city and comply with tougher zoning rules. The municipal regulations put in place here have become a model for El Paso, Austin and San Antonio battles against payday lenders.
But because state law is weaker and no federal regulations exist for payday lenders, significant gaps in enforcement exist. For example, payday lenders are setting up shop just across the Dallas city lines in neighboring towns; nationally, they are running from state to state or using online methods to circumvent rules.
Dallas City Council member Jerry Allen said there is “no question that [lenders] are taking a hit in cities that have passed tougher ordinances,” but he said the issue “ultimately will need to be resolved at the national level.” Allen also noted that City Hall recently shut down 38 payday lenders operating in pawnshops, a violation of city code, and that no new payday lenders have opened since Dallas’ tougher zoning laws went into effect two years ago.
All of this is evidence that cities don’t have to sit idle and watch payday lenders multiply.
We urge Lt. Gov. David Dewhurst and House Speaker Joe Straus to appoint interim committees to propose tougher statewide legislation for the 2015 session. The Dallas model is a good place to start. State regulations won’t come easy: Efforts to enact tough rules last session devolved into a struggle with lobbyists seeking to undo municipal regulations.
It’s encouraging that the consumer protection bureau is joining in municipal efforts. Now the state needs to step up aggressively as well.
We would like to see policymakers:
Limit payday payments to an affordable percentage of a borrower’s income. Research indicates that monthly payments above 5 percent of gross monthly income are unaffordable.
• Spread costs evenly over the life of the loan.
• Guard against harmful repayment or collection practices.
• Require concise disclosures that reveal both periodic and total costs.
The Dallas Morning News