Over the past several months, payday lender institutions have been a hot topic during the city council’s citizen’s forum since the council first discussed its ordinance regulating them on Oct. 20. Those that have chosen to speak out have all been in favor of the city strengthening its regulation of the businesses.
The city council continued its discussion about its regulation of the businesses during its regular work session Monday, with an emphasis on evaluating the feasibility of an ordinance developed by the Texas Municipal League (TML).
The city first adopted an ordinance regulating the location of alternative lenders in 2008.
“We were among the first in Texas to adopt limitations on [payday lenders],” said Carol Zolnerowich, deputy city manager. “The Texas Municipal League since then has developed an ordinance to limit predatory practices.”
The TML ordinance focuses on placing limitations on the amount of money that can be loaned based on the type of loan being applied for and sets limits on the amount of times loans can be extended.
“Pay day loans are limited to 20 percent of their gross monthly income,” Zolnerowich said.
The other loan limits apply to auto title loans, which are limited to 3 percent of a person’s annual income or 20 percent of the car’s value, and installment loans, which cannot exceed four payments. Lump sum loans are also limited to three renewals under the ordinance.
“Violation of the ordinance would be a Class C misdemeanor with a maximum fine of $500,” Zolnerowich said.
Zolnerowich said, based on council input in October, the city staff contacted several cities that had implemented the TML ordinance to inquire about how they are enforcing the ordinance.
“The results were disappointing,” Zolnerowich said. “There was limited value since most had recently adopted it and some had adopted it without an enforcement plan in place,” Zolnerowich said.
The city with the most experience was the city of Dallas, who told the city staff the lenders were complying with the ordinance.
For the city of Mesquite to implement the ordinance and enforce it a registration process would have to be created, with an annual audit being part of the enforcement plan, Zolnerowich told the council.
“To conduct the audits will require an accountant with audit experience. We contacted the city’s outside auditor and they estimated the annual cost at $6,800 per site,” Zolnerowich said.
Deputy Mayor Pro Tem Greg Noschese inquired as to whether it was possible to require the lenders to pay the $6,800 as part of their registration fee to the city. He was advised by the city’s legal counsel they would have to look into it since it was such a high amount.
During the discussion of the ordinance, Noschese asked the city staff to evaluate the possibility of requiring anyone applying for a loan at one of the institutions to have to attend a credit counseling session prior to the loan being completed.
“We could partner with a local nonprofit and require the lenders to keep a certificate on file that shows they completed the counseling,” Noschese said.
Councilwoman Shirley Roberts, who owns a real estate business, said there is a similar counseling program being offered for home buyers that have bad credit.
“They have to go to counseling for six to eight weeks, where they show them how to save money for their down payment. If they are willing to do it, they can still buy a house,” Roberts said.
Councilman Bruce Archer was in favor of passing the TML ordinance as it was presented.
“Even with counseling, some folks are still going to get taken advantage of,” Archer said. “If [the ordinance] helps just a few families, it’s worth doing it.”
The council will discuss its options for strengthening the ordinance, currently in place, again during a future council work session.