Houston Regulating Payday Lenders

Houston has joined the growing list of cities that seek to regulate the payday loan industry. The proposed legislation is an attempt to regulate the industry within their own jurisdiction and is claimed to be in response to the growing problem of insurmountable debt within their own city. Payday loans, whether made by storefronts or on the Internet, are defined in this legislation by their relatively small dollar amounts and large annual percentage rates (APRs). Current Texas payday lending law does not require a cap on the amount an individual can borrow from a payday loan lender. The proposed law would cap payday loans at 35 percent of the borrower's gross monthly income for single-payment loans. Each installment on multiple-payment loans would be capped at 25 percent of the borrower's monthly income. Auto title loans could not exceed 6 percent of the borrower's gross annual income or 70 percent of the car's value, whichever is less. In addition, the proposal would strictly regulate refinancing or rollover loans and eliminate any automatic rollover loans. It also allows for interest free payments without added fees when rollover maximums are reached. Four other cities in Texas have already implemented payday loan legislation including Austin, Dallas, El Paso and San Antonio and it is anticipated that more cities will follow their lead implementing a complex and diverse set of ordinances to oversee the payday loan and auto-title lenders. In other states, cities such as Seattle, have laws that impose strict regulations. The Seattle law limits the size of a payday loan to 30 percent of a person's monthly income, or $700, whichever is less. It also prohibits multiple loans to a borrower from different lenders, limits the number of loans a person can take out to 8 per 12 months, and sets up a database to track the number of loans taken out by people. From a broad perspective, payday loans are prohibited in some states and restricted in others. Usury laws curb payday loans and the federal Truth in Lending Act, lenders must ensure that accurate disclosures are provided to their clients.