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- Fort Worth Council passes new regulations for payday loans.
- Payday loan lenders downplay impact of payday loan regulations
- Calls for online lending regulation
Fort Worth Council has taken a firm stance against high-interest payday loans. On a Split Vote, the City Council has passed a set of regulations. For the longest time, Fort Worth was the only major city in Texas without rules governing the issuance of the high-interest payday loans.
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Payday Loans Regulations
A split vote came as a huge relief to advocates that have been pushing for tighter regulations to curb title lenders from charging too much interest on such loans. The vote, which came after a year of deliberations between council members and city staff have since given rise to a new set of regulations that lenders will have to adhere to.
All firms running credit access businesses offering payday loans will have to register with the city annually and display the certificate of registration. The businesses will also have to maintain a record of borrowers. The record must include the total amount lent for the past three years.
Likewise, the credit businesses are required to limit cash advance loans to 20% of the borrower’s income. The credit business is also required to limit the number of installment payments on loans to four. Similarly, businesses are required to provide loan information to a consumer’s language of preference.
The regulations are designed to bring sanity to an industry that has been shrouded in mystery as well as criticism. In Texas, borrowers cannot pay more than 10% to a third party on any loan amount. However, payday loan lenders over the years have exploited a loophole in the law to charge uncapped rates as well as fees that have seen people end up paying more than double the amount borrowed.
Payday Loans Outcry
There have been claims that payday and auto lenders target people with desperate financial needs and consequently end up hitting them with exorbitant fees and interest rates. The most hurt by the high costs of payday loans are people with bad or no credit. Concerned by the debt cycles, some cities in the state have passed zoning requirements that bar payday loan lenders from operating near low-income neighborhoods as well as highways.
The payday loan industry has, however, come out fighting, maintaining that strict regulations will only make it difficult for low-income families to get credit. In defense of the payday industry, council member Brian Byrd has reiterated that he has not come across any data supporting claims that lending regulations have helped curb debt cycles.
Online Lending
It is unclear whether the passed regulations will do much in helping people from being trapped in bad debts. For starters, the new regulations are not expected to have any impact on online payday loans, given that the city cannot regulate online activity.
The fact that more and more banking is done online essentially means that people will continue going for the high-interest rates on the touch of a button. State laws can only do too much to regulate payday loans by mostly passing laws touching on licensing, data collection as well as legal disclosures. The Federal government, on the other hand, might have to do much to regulate interest rates on payday loans as well as online lending.
Rebecca White is chief editor at CreditRaters.com. Rebecca has an extensive amount of knowledge on financial subjects including short-term loans & debt consolidation in the UK and USA. Rebecca has wrote for many publishers such as Debt Secret, My Money, VL and more.