Almost a decade ago, Dallas became the first city in Texas to put some limitations on payday loans. These are small loans offered to folks with poor credit at annual percentage rates as high as 500%. Now, some faith leaders are saying it’s time to update the city’s rules to protect consumers from new loan products they call predatory.
Dallas’ 2011 ordinance didn’t ban payday loans outright, but it added transparency and guard rails to keep loan companies from lending money on terms that made it more challenging to pay off, and often forced people into a spiral of endless re-financing and fees.
Even though the city’s rules didn’t cap fees on the loans, Minister Danielle Ayers of Friendship-West Baptist Church said Thursday that the ordinance made a difference, and more than 45 cities have since followed suit.
“We saw a decrease in the number of new loans, in the number of refinances, in the dollar amount of new loans,” Ayers told a city council committee. “The amount of fees decreased and the total number of vehicles repossessed also went down.”
Now, Ayers says those same payday loan companies are offering risky and unregulated new loan products, called signature loans or personal loans.
Last year, Attorney General Ken Paxton wrote in an opinion that the new loans are legally different than payday loans. That means the city’s guard rails don’t apply to signature or personal loans, and they’re completely unregulated by the state.
But Ayers said signature loans are often sold by the same stores that sell payday loans. The companies that make the loans often require authorization to take money from a borrower’s bank account at a later date, the same as a payday loan.
Some contracts will even include fine print specifying that the signature loan is not a payday loan, Ayers said.
“Though they say it in print, they have the practice of doing just that. That creates a problem and a cycle of debt where borrowers are unable to pay the loan off, and that just puts them further and further behind,” she said.
Ayers is part of a group of faith leaders in Dallas calling for a new ordinance that would apply guard rails to signature loans.
Rev. Gerald Britt from the Anti-Poverty Coalition of Greater Dallas told members of the city council time is of the essence, with an eviction moratorium set to expire by the end of the year.
“During this age of COVID, we have residents who are particularly financially vulnerable, and who may fall pray to this predatory industry,” Britt said.
The city of Austin tried to expand its payday loan ordinance to include personal and signature loans. It’s currently fighting a lawsuit from the industry that wants it overturned.
The Dallas City Council could take up a similar ordinance as early as January.
Got a tip? Christopher Connelly is KERA's One Crisis Away Reporter, exploring life on the financial edge. Email Christopher at cconnelly@kera.org.You can follow Christopher on Twitter @hithisischris.
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