A Typical Texas Payday Loan City Ordinace

ORDINANCE NO. 16-3183

AN ORDINANCE OF THE CITY OF BEDFORD, TEXAS SETTING FORTH REGISTRATION

REQUIRMENTS AND CREDIT EXTENSION GUIDELINES FOR CREDIT ACCESS BUSINESSES;

CONTAINING A SAVINGS CLAUSE; PROVIDING A PENALTY CLAUSE; AND PROVIDING AN

EFFECTIVE DATE.

WHEREAS, the City of Bedford, Texas is a home rule city acting under its Charter adopted by the

electorate pursuant to Article XI, Section 5 of the Texas Constitution and Chapter 9 of the Local

Government Code; and,

WHEREAS, the City of Bedford, Texas contains credit access businesses, which provide payday

loans and advances to consumers who work and reside within the City; and,

WHEREAS, the City Council of the City of Bedford has determined that certain credit access

businesses engage in abusive and predatory lending practices, offering easy money to those

members of our community who are in a tight spot with onerous terms and fees; and,

WHEREAS, the practices of certain credit access businesses cause members of our community to

become trapped in a cycle of short term, high interest loans resulting in large debt and huge

payments; and,

WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who

Borrows, Where they Borrow, and Why, (July 2012), wrote that “payday loans are sold as two-week

credit products that provide fast cash, but borrowers are actually indebted for an average of five

months per year.” The report further noted that “on average, a borrower takes out eight loans of $375

each per year and spends $520 on interest;” and,

WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who

Borrows, Where they Borrow, and Why, (July 2012), also noted: “How much borrowers spend on

loans depends heavily on the fees permitted by their state. The same $500 storefront loan would

generally cost about $55 in Florida, $75 in Nebraska, $87.50 in Alabama, and $100 in Texas, even if it

were provided by the same national company in all those states. Previous research has found that

lenders tend to charge the maximum permitted in a state;” and,

WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who

Borrows, Where they Borrow, and Why, (July 2012), also stated that “the vast majority of borrowers

use the loans on a long-term basis, not temporary one. Thus it seems that the payday loan industry

is selling a product few people use as designed and that imposes debt that is consistently more costly

and longer lasting than advertised;” and,

WHEREAS, the Community Financial Services Association of America (CFSA), the national trade

association for companies that offer small dollar, short-term loans or payday advances includes the

following in the “Member Best Practices” as listed on its Internet site (http://cfsaa.com/cfsa-memberbest-practices.aspx):

“Members shall not allow customers to rollover a payday advance (the

extension of an outstanding advance by payment of only a fee) unless expressly authorized by state

law, but in such cases where authorized will limit rollovers to four or the state limit, whichever is

less.” The need for consumer understanding was also outlined on this website: “A contract between

a member and the customer must fully outline the terms of the payday advance transaction. Members

agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate

(“APR”);” and,

WHEREAS, the Center for Responsible Lending, a non-profit, non-partisan organization, states on its

internet site (http://www.responsiblelending.org/other-consumer-loans /tools-resources/fastfacts.html)

that: “car title loans are based on the value of a borrower’s car – the ability to repay the

loans is not factor in the lending decision…”; “loan rates for a car title are typically 20-30 times that

of rates charged by credit card issuers…”; “the average car title customer renews their loan 8

ORDINANCE NO. 16-3183

times…”; and, “on a $500 title loan, this average customer will pay back $650 in interest over eight

months; the principal borrowed will be in addition;” and,

WHEREAS, lenders hold onto the motor vehicle title and when borrowers cannot continue to pay the

fees, they can lose their vehicles, which can drastically affect the borrower’s means of transportation

for work and other essential household functions; and,

WHEREAS, the City Council of the City of Bedford, Texas hereby finds and determines that the

regulation of credit access businesses as set forth herein is in the best interest of the public and is

in furtherance of the public health, safety, morals, and general welfare.

NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF BEDFORD:

SECTION 1. That all matters stated in the preamble are hereby found to be true and correct and are

incorporated herein by reference as if copied in their entirety.

SECTION 2. That Chapter 26, “Businesses” of the Code of Ordinances of the City of Bedford, Texas is

hereby amended by adding Article IV. “CREDIT ACCESS BUSINESSES” to read as follows:

Sec. 26-121. – Short title and purpose.

(a) This article may be known and cited as “Credit Access Businesses Regulation.”

(b) The purpose of this article is to protect the welfare of the citizens of the City of Bedford by

monitoring credit access businesses in an effort to reduce abusive and predatory lending

practices. To this end, this article establishes a registration program for credit access businesses,

imposes restrictions on extensions of consumer credit made by credit access businesses, and

imposes recordkeeping requirements on credit access businesses.

Sec. 26-122. – Definitions.

As used in this article:

(1) Certificate of registration means a certificate of registration issued by the director under this

article to the owner or operator of a credit access business.

(2) Consumer means an individual who is solicited to purchase or who purchases the services

of a credit access business.

(3) Consumer’s language of preference is the language the consumer understands best.

(4) Credit access business has the meaning given that term in Section 393.601 of the Texas

Finance Code, or successor section.

(5) Deferred presentment transaction has the meaning given that term in Section 393.601 of the

Texas Finance Code, or successor section.

(6) Director means the City Manager or the person designated by the City Manager directed to

enforce and administer this article.

(7) Extension of consumer credit has the meaning given that term in Section 393.001 of the Texas

Finance Code, or successor section.

(8) Motor vehicle title loan has the meaning given that term in Section 393.601 of the Texas

Finance Code, or successor section.

ORDINANCE NO. 16-3183

(9) Person means any individual, corporation, organization, partnership, association, financial

institution, or any other legal entity.

(10) Registrant means a person issued a certificate of registration for a credit access business

under this article and includes all owners and operators of the credit access business

identified in the registration application filed under this article.

(11) State license means a license to operate a credit access business issued by the Texas

Consumer Credit Commissioner under Chapter 393, Subchapter G of the Texas Finance Code,

or successor section.

Sec. 26-123. – Violations; penalty.

(a) A person who violates a provision of this article, or who fails to perform an act required of the

person by this article, commits an offense. A person commits a separate offense for each and

every violation relating to an extension of consumer credit, and for each day during which a

violation is committed, permitted, or continued.

(b) An offense under this article is punishable by a fine of not more than $500.

(c) A culpable mental state is not required for the commission of an offense under this Article IV of

Chapter 26 of the Bedford Code of City Ordinances and need not be proved.

(d) The penalties provided for in Subsection (b) are in addition to any other remedies that the city may

have under city ordinances and state law.

Sec. 26-124. – Defenses.

It is an affirmative defense to prosecution under this article that at the time of the alleged offense the

person was not required to be licensed by the state as a credit access business under Chapter 393,

Subchapter G, of the Texas Finance Code.

Sec. 26-125. – Registration required.

(a) A person commits an offense if the person acts, operates, or conducts businesses as a credit access

business without a valid certificate of registration.

(b) A certificate of registration is required for each physically separate credit access business.

26-126. – Registration application.

(a) To obtain a certificate of registration for a credit access business, a person must submit an

application on a form provided for that purpose to the director. The application must contain the

following:

(1) The name, street address, mailing address, facsimile number, email address and

telephone number of the applicant.

(2) The business or trade name, street address, mailing address, facsimile number, email

and website address and telephone number of the credit access business.

(3) The names, street addresses, mailing addresses, email addresses and telephone

numbers of all owners of the credit access business, and the nature and extent of each

person’s interest in the credit access business.

ORDINANCE NO. 16-3183

(4) A copy of a current, valid state license held by the credit access business pursuant to

Chapter 393, Subchapter G of the Texas Finance Code.

(5) A copy of a current, valid certificate of occupancy showing that the credit access

business is in compliance with the Code of Ordinances of the City of Bedford.

(6) A non-refundable application fee as set out in the fee ordinance.

(b) An applicant or registrant shall notify the director within 45 calendar days after any material

change in the information contained in the application for a certificate of registration, including,

but not limited to, any change of address, including email and website addresses and telephone

number(s) and any change in the status of the state license held by the applicant or registrant.

Sec. 26-127. – Issuance and display of certificate of registration; presentment upon request.

(a) The director shall not issue to the applicant a certificate of registration until a completed

application under Section 26-126 is received and approved.

(b) A certificate of registration issued under this section must be conspicuously displayed to the

public in the credit access business. The certificate of registration must be presented upon

request to the director or any peace officer for examination.

(c) Denial of application or revocation of registration.

(1) An application may be denied for failure to comply with the requirements of this article, city

ordinances or state or federal law.

(2) A registration may be revoked for failure to comply with the requirements of this article, city

ordinances or state or federal law.

(3) Appeal. The denial of an application or the revocation of registration may be appealed to the

City Manager.

Sec. 26-128. – Expiration and renewal of certificate of registration.

(a) A certificate of registration expires on the earliest of:

(1) One year after the date of issuance; or

(2) The date of revocation, suspension, surrender, expiration without renewal, or other termination

of the registrant’s state license.

(b) A certificate of registration may be renewed by making application in accordance with Section 26-

126. A registrant shall apply for renewal at least thirty (30) days before the expiration of the

registration.

Sec. 26-129. – Non-transferability.

A certificate of registration for a credit access business is not transferable.

Sec. 26-130. – Maintenance of records.

(a) A credit access business shall maintain a complete set of records of all extensions of consumer

credit arranged or obtained by the credit access business, which must include the following

information:

ORDINANCE NO. 16-3183

(1) The name and address of the consumer.

(2) The principal amount of cash actually advanced.

(3) The length of the extension of consumer credit, including the number of installments and

renewals.

(4) The fees charged by the credit access business to arrange or obtain an extension of consumer

credit.

(5) The documentation used to establish a consumer’s income under Section 26-131.

(6) If applicable, the documentation described in Section 26-132 for persons unable to read an

agreement or extension.

(b) A credit access business shall maintain a copy of each written agreement between the credit access

business and a consumer evidencing an extension of a consumer credit (including, but not limited

to, any refinancing or renewal granted to the consumer).

(c) A credit access business shall maintain copies of all quarterly reports filed with the Texas Consumer

Credit Commissioner under Section 393.627 of the Texas Finance Code.

(d) The records required to be maintained by a credit access business under this section must be

retained for at least three years.

(e) The records required to be maintained by a credit access business under this section must be made

immediately available for inspection by the director or a peace officer upon request during the usual

and customary business hours of the credit access business.

Sec. 26-131. – Restriction on extension of consumer credit.

(a) The cash advanced under an extension of consumer credit that a credit access business obtains for

a consumer or assists a consumer in obtaining in the form of a deferred presentment transaction may

not exceed twenty percent (20%) of the consumer’s gross monthly income.

(b) The cash advanced under an extension of consumer credit that a credit access business obtains for

a consumer or assists a consumer in obtaining in the form of a motor vehicle title loan may not

exceed the lesser of:

(1) Three percent (3%) of the consumer’s gross annual income; or

(2) Seventy percent (70%) of the current retail value of the motor vehicle.

(c) A credit access business shall use a paycheck or other documentation establishing income to

determine a consumer’s income.

(d) An extension of consumer credit that a credit access business obtains for a consumer or assists a

consumer in obtaining and that provides for repayment in installments may not be payable in more

than four installments. Proceeds from each installment must be used to repay at least twenty-five

percent (25%) of the principal amount of the extension of consumer credit. An extension of consumer

credit that provides for repayment in installments many not be refinanced or renewed.

(e) An extension of consumer credit that a credit access business obtains for a consumer or assists a

consumer in obtaining and that provides for a single lump sum repayment may not be refinanced or

renewed more than three (3) times. Proceeds from each refinancing or renewal must be used to repay

at least twenty-five percent (25%) of the principal amount of the original extension of consumer credit.

ORDINANCE NO. 16-3183

(f) For purposes of this section, an extension of consumer credit that is made to a consumer within seven

(7) days after a previous extension of consumer credit has been paid by the consumer will constitute

a refinancing or renewal.

Sec. 26-132. – Requirement of consumer understanding of agreement.

(a) Every agreement between the credit access business and a consumer evidencing an extension of

consumer credit (including, but not limited to, any refinancing or renewal granted to the consumer),

must be written in the consumer’s language of preference. Every credit access business location

must maintain on its premises, to be available for use by consumers, agreements in the English and

Spanish languages.

(b) For every consumer who cannot read, every agreement between the credit access business and a

consumer evidencing an extension of consumer credit (including, but not limited to, any refinancing

or renewal granted to the consumer) must be read to the consumer in its entirety in the consumer’s

language of preference, prior to the consumer’s signature.

(c) For every consumer who cannot read, every disclosure and notice required by law must be read to

the consumers in its entirety in the consumer’s language of preference, prior to the consumer’s

signature.

Sec. 26-133. – Referral to consumer credit counseling.

A credit access business shall provide a form, to be prescribed by the director, to each consumer

seeking assistance in obtaining an extension of consumer credit which references non-profit agencies

that provide financial education and training programs and agencies with cash assistance programs.

The form will also contain information regarding extensions of consumer credit, and must include the

information required by 26-130(a)(1)-(5), and subsection(6) where applicable, of this ordinance specific

to the loan agreement with the consumer. If the director has prescribed a form in the consumer’s

language of preference, the form must be provided in the consumer’s language of preference.

SECTION 3. That should any article, section, part, paragraph, sentence, phrase, clause, or word of this

ordinance, for any reason be held illegal, inoperative, or invalid, or if any exception to or

limitation upon any general provision herein contained be held to be unconstitutional or

invalid or ineffective, the remainder shall, nevertheless, stand effective and valid as if it had

been enacted and ordained without the portion held to be illegal, inoperative,

unconstitutional, invalid, or ineffective.

SECTION 4. That any person violating any of the provisions of this ordinance shall be deemed guilty

of a misdemeanor and upon conviction thereof shall be fined in a sum not to exceed

Five Hundred Dollars ($500.00) and a separate offense shall be deemed committed upon

each day during or on which a violation occurs or continues.

SECTION 5. That this ordinance shall become effective and shall be in full force and effect from and

after the final date of passage and adoption by the City Council of the City of Bedford,

Texas and following publication as provided by law.

PRESENTED AND PASSED this 27th day of September 2016, by a vote of 7 ayes, 0 nays and 0

abstentions, at a regular meeting of the City Council of the City of Bedford, Texas.

__________________________________

Jim Griffin, Mayor

ORDINANCE NO. 16-3183

ATTEST:

________________________________________

Michael Wells, City Secretary

APPROVED AS TO FORM:

Stan Lowry. City Attorney