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Houston City Council debates payday loan regulation

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At the regular meeting of Houston City Council on Wednesday, Dec 4, most of the time was devoted to a discussion of the merits of a proposed new regulation of short-term “payday” loans operating within the city. The Mayor's Report was delivered by City Attorney David Feldman, who summarized the proposal with a brief description of the three most common “payday” loans, and efforts to regulate the industry statewide.

Typically, payday lenders are loan brokers who offer relatively small loans to be paid in part or in full from the borrower's next paycheck, two weeks to 1 month later. If the borrower cannot pay in full, the loans are often renewed with a new fee. A typical loan might be renewed up to 9 times, so the combined effect of high interest and frequent renewal fees can be as high as 520%.

The proposed regulation is based on a model ordinance enacted by several other cities in Texas, including San Antonio, Dallas, and Santa Fe. While all agreed that a state regulation would be preferable, proposed bills have not yet been passed by the Texas legislature.

The regulation would require the payday lenders to be registered, (already required in state law). In addition, it would impose limits on the number of times a loan can be renewed and a maximum of 20% of the borrower's income, in an effort to avoid the process that leaves many borrower's with unaffordable debt, which may also lead to repossession of vehicles, limited access to employment, and an ability to meet necessities.

The debate following Attorney Feldman's presentation lasted about 2 hours. The Council then disposed of the 40 items on the agenda in about 5 minutes, with almost every item approved nearly unanimously with a “no” vote from Council Member Brown, or tagged.

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