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Houston's Payday Lending Reform Sends Strong Message to Stagnant State Legislature

by: Shelby Alexander

Fri Dec 20, 2013 at 00:00 PM CST

In an overwhelming vote of 15 to 2 earlier this week, the Houston City Council passed significant reforms on the predatory payday lending industry. Despite skepticism that the ordinance would be tagged, pushing the vote into the new year and risking the ordinance at the mercy of a new City Council, the measure passed with greater ease than expected. The ordinance implements new limitations on amounts that can be borrowed from payday lenders, how many payments are allowed, and establishes additional oversight over payday lending businesses to better protect consumers.

This means that just about every major city in Texas (except for Fort Worth) has taken the initiative to protect families from entering a cycle of debt. Unfortunately as we have seen, the Republican-controlled Legislature is more interested in listening to high-dollar lobbyists than protecting our most vulnerable residents.

Read more about the ordinance below the jump.

The fact that these reforms were able to pass with such a significant majority shows that local leaders are willing to step up where the Legislature has shirked off responsibility to reform an industry that profits off of low-income Texans. City Council members Helena Brown and James Rodriguez, who were the two "no" votes on the ordinance, will be replaced by arguably more sensible candidates, Brenda Stardig and Robert Gallegos. Council Member Rodriguez  received the most criticism by voting against the ordinance, which will be especially helpful to many of his own constituents.

Key details of the ordinance establish that a loan borrowed cannot exceed 20 percent the amount of an individual's gross monthly income. With an auto title loan, the amount borrowed must be the lesser of either 3 percent of the borrowers' annual income, or 70 percent of the automobile retail value. It also sets limits on the amount that can be borrowed, and creates a maximum of 4 installments, while each payment must reduce the loan principle by at least 25 percent. Consumer credit counseling materials must also be distributed to borrowers, and a new database will be created to keep track of all payday and auto title loan businesses. Houston is the fifth major city in Texas to pass these reforms.

Even Council Members who had previously shown resistance to the ordinance understood the desperation of the situation at hand.  "Something must be done; something should be done," Councilman Andrew Burks said. "Our Legislature, they had the ball and dropped it. I don't like this, but I have to vote for it because ... this is the only thing on the table, and it does do something."

There was an outpouring of support from organizations like AARP, and statewide electeds applauding the efforts of the Houston City Council.

From AARP:

"The vote today sends a strong message that Austin needs to get its act together and adopt meaningful payday lending reforms that will help the millions of Texans who still are at the mercy of abusive lending practices. Texans should be able to access short term loans at reasonable terms. They should be informed and protected consumers, rather than victims of predatory lending practices."

From Senator Sylvia Garcia:

"I am elated today that the Houston City Council brought working families an early Christmas present and voted to join Dallas, Austin, San Antonio, and El Paso by passing tougher regulations on payday lenders in our city. For too long, the working families of Houston have been preyed upon by pay day lenders as they tried to survive from month to month. I applaud Mayor Parker on her leadership and thank all of the City Councilmembers who voted in favor of this ordinance. This is just another example of the great work Houston is doing to protect the working families of Texas. And let this be a message to payday lenders of what is soon to come at the State level as well."

From Senator Rodney Ellis:

"Last session I, along with members from both sides of the political aisle, opposed an omnibus statewide bill because it was too weak due to industry influence. Plus, it would have prevented Houston from passing just such a strong ordinance that would truly protect our constituents. Next session, I plan on introducing thoughtful legislation that will actually protect Texans and preserve local control. I am very grateful to Mayor Parker and Houston City Council for sending a message to the state legislature that Houstonians will not settle for any less."

Action from local entities and the response from progressive legislators is setting up a strong precedent for next Legislative session. With this momentum, consumers are showing they won't sit back while predatory lenders pay off stagnant legislators. The road to payday lending reform is being paved by local initiatives, and it's only getting stronger.

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