Wednesday, October 19, 2011

The Battle Against Payday Lenders Continues...

A couple of weeks ago, Rob Norcross, CEO of the Consumer Service Alliance of Texas, gave a Q&A interview in the Dallas Morning News, explaining why CSAT was suing the city of Dallas because of a zoning ordinance passed this summer to regulate payday and auto title loan lenders.

Suffice it to say that Norcross, I and a number of those of us who fought to get the ordinance disagree. Here's an excerpt of his interview...

"Q: The Consumer Service Alliance of Texas has called the city’s new payday lender ordinance “egregious” and has sued to stop the law from being implemented. What’s egregious about regulating these businesses?
"A: The Texas Legislature has the authority to regulate small, short-term loans. The ordinance limits access to credit for hardworking Texans. Many who qualify for loans today will not be able to access short-term credit under the terms of the ordinance. Those customers will be forced to turn to more expensive, or illegal, choices for credit."
"Q: The law restricts loans that can be extended in an effort to prevent people from becoming trapped in a debt cycle. Is that objectionable?
"A: Extended payment plans with no fees or interest charges are available for customers who experience a financial setback after obtaining a loan. Arbitrary restrictions on the number of allowable payments restrict innovation in the marketplace and harm consumers. Existing products with multiple, smaller payments and new products tailored to fit consumer financial needs would be prohibited by the ordinance."
"Q: Supporters of the ordinance argued that some payday lenders prey on vulnerable customers by charging exorbitant interest rates and fees that they cannot afford. Are any businesses in your industry guilty of that?
"A: Prices are set by competitive market forces in Texas. The Texas Legislature specifically chose not to institute price controls to distort the market and harm consumers. Many of the realistic credit alternatives for small loan customers are more expensive, such as credit card, bank NSF [non-sufficient fund] and overdraft fees."
"Over 56 percent of small loan customers in Texas have at least some college education. They are quite capable of comparing the costs of credit alternatives and making reasonable, rational decisions."
You can read the rest of his interview here.
My column in the DMN this month refutes much of what Norcross says, and explains why the protections afforded by the zoning ordinances are necessary. The column is below in it's entirety.

"The most surprising application of the Malcolm X maxim “By any means necessary …” is its philosophical adoption by certain sectors of the business community, including, apparently, Rob Norcross, head of the Consumer Service Alliance of Texas, which represents payday lenders. His responses in an Oct. 9 Dallas Morning News Point Person interview seem to suggest that profit “by any means necessary” is the intent of the payday and auto-title loan industries."

"An alarming number of testimonies from people victimized by the practices of short-term lenders, along with statewide and national statistics that support those stories, expose the exploitative nature of this industry. Against that backdrop, Norcross’ group has filed suit against the Dallas City Council’s unanimous adoption of a zoning ordinance designed to rein in the lenders’ most egregious, predatory practices. That legal action clearly demonstrates the industry’s desire to continue to take advantage of our most desperate citizens."

"Nearly every statement in the Norcross interview evinces gross insensitivity to the pain suffered by individuals and families who are now mired in debt because of exorbitant interest rates disguised as fees and rolled over multiple times because of the customer’s inability to repay these short-term, short-dollar loans."

"Norcross points to the minimalist legislation passed by Texas lawmakers this past session as evidence that there’s no need for tougher regulation. But he fails to mention that the industry paid an estimated $8 million to $10 million to lobbyists to suppress efforts to close the Credit Service Organization loophole, resulting in what state Sen. John Carona, R-Dallas, called “the most over-lobbied issue this session.”

The industry arguments that the Dallas ordinance is unnecessary because most customers repay their loans on time are specious at best. Besides, there is nothing in the ordinance that prevents repayment in one to four payments if desired. If the payday lenders wish to offer installment loans of more than four payments, they simply need to become licensed lenders with the state."

"Norcross asserts that the market determines conditions under which payday lenders proliferate and interest rates grow. But the numbers used to support the need for a market for the loan services include the second and third loans (and beyond) that are taken out to pay off initial loans. While marketed as short-term fixes, the terms make these loans nearly impossible to repay. For instance, “fees” on a $4,000 auto-title loan are more than $1,000 a month."

"While Norcross testified before a Texas Senate committee that 392 percent interest was “too low” for the industry to survive, SmallCap Network reports that business is booming for the small-dollar loan industry."

"Unlike their customers, operations such as EZcorp, Advance America, Cash Advance Centers and Cash America International are watching their stock double in an economy on life support. In a natural disaster, we don’t allow anyone to charge $20 for a bottle of water. So why allow lender exploitation during times of economic crisis?"

"Payday and auto-title lenders are not the victims here. Do not confuse their problems with the plight of the nearly 20 percent of Catholic Charities clients in Texas who are forced to seek financial assistance after becoming ensnared in debt because of payday loans or the 40 percent of people who came to CitySquare seeking aid to pay rent or utilities after they got further into debt through payday loans. Consider the elderly woman about whom I received an email just before I testified in support of the city’s regulatory ordinance: Her car was repossessed after missing one auto-title loan payment."

"The Dallas City Council took stringent measures for one reason: When any predatory industry declares itself determined to exploit desperate citizens under the guise of market legitimacy, those citizens must be protected — by any means necessary."

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