After a summer tussling over plastic bag bans and parking meter hours, the City Council seemed unwavering in its willingness to impose onerous restrictions on Austin businesses. Last week, however, the council began implementing a set of ordinances on payday lenders. These new rules are as commonsense as they are long overdue.
Councilman Bill Spelman, who proposed the restrictions, astutely recognized lenders’ predatory nature on working-class and financially inexperienced Austinites. Outraged that lenders could bilk clients’ earnings by charging them interest rates well above a staggering 620 percent, Spelman decided to take action. His restrictions would apply the city’s authority on zoning laws, registration and lending rules on the payday stores.
Last week, the council instructed the city manager to establish an ordinance limiting the amount of money payday lenders can loan out as well as where they can set up shop. According to KXAN, the ordinance would prohibit these lenders from operating “within 1,000 feet of each other, 200 feet of a residential area and 500 feet of a major highway intersection.”
The ordinance would also require all lenders to register with the city, restrict borrowers from continuously refinancing a loan, prohibit new lending offices in East Austin and the UT campus area and prohibit lenders from loaning out more than 20 percent of a borrower’s monthly income.
UT students greatly benefit from the absence of these lenders near our campus. A cash-strapped young college student, not fully understanding the risks of taking out such loans, could easily fall into a vicious cycle of delinquency and spiraling interest payments. Students who are often establishing credit and paying an apartment contract for the first time are particularly vulnerable to exploitation by these loan sharks. The UT community could do without another financial stressor.
Predictably, Austin’s payday lenders went up in arms over the regulations. Virtually nonexistent a decade ago, stores hawking names such as EZCorp, Advance America and Check ‘n Go have proliferated throughout the city. Offering cash at usurious interest rates (often in the 300- to 500-percent range), they entrap Austinites struggling to make ends meet by deliberately instituting a very narrow time period of repayment. Spelman noted that Austin has more payday lenders than McDonald’s and Starbucks combined.
The lenders argue that their stores shouldn’t be subject to zoning regulations since Austin banks aren’t subject to the same. Unlike banking institutions, payday lenders in Texas are virtually unregulated in how much interest they can charge borrowers. Would Bank of America or Chase ever charge 500 or 600 percent interest for a debit card overdraft? An apples-to-oranges comparison doesn’t absolve payday lenders.
Payday lenders often wax apocalyptic tones on how borrowers would remain bereft of credit without them. On the contrary, the absence of payday lenders would allow far more reputable and responsible lending groups to take their place. Nonprofits such as Catholic Charities of Central Texas and Caritas already do a fantastic job helping with housing assistance-related costs. They would only grow in influence and reach if there were fewer payday stores.
Community-sponsored credit unions and finance companies can also provide loans at interest rates far more reasonable to Austinites in need of cash. With the payday lenders fiercely regulated, these institutions could enjoy rapid growth and mutually benefit borrowers seeking a firmer financial footing. In sum, more responsible financial institutions would quickly replace payday shops.
Conservative politicians in Texas understand the argument that payday lending increases “financial choice” rings hollow. The Republican-controlled state Legislature itself passed restrictions this year requiring payday stores to register with the state and requires all payday lenders to explicitly inform prospective borrowers of the interest rates and fees.
Although these lenders spent more than $8 million on lobbyists to kill an effort to cap interest rates, Republican legislators have vowed to try again in the 2013 session. Their efforts represent a bipartisan agreement on this issue nationwide. The conservative stronghold of Georgia has banned payday lending outright and the famously liberal state of Vermont has one of the most stringent rate caps on payday lenders’ interest rates.
The Austin business community understands how payday lenders affect their bottom line. By needlessly trying to pay off the interest, those who borrow from payday lenders have less disposable income to invest in regional businesses. When they default, borrowers are more likely to also break leases and apartment contracts, less likely to be able to buy groceries or school supplies for their children and less likely to rise out of poverty.
The council’s regulations on payday lending will benefit Austin residents and small businesses alike. Austinites of all political stripes should relish these sensible curbs on unscrupulous predatory practices.
Quazi is a nursing graduate student.
