In a Waco Trib column this week, Baylor University associate professor Steve Bradley offered thoughtful, well-researched ideas on payday lending reforms that would mandate lower interest rates statewide but not so low as to drive lenders out of business and block access to credit for the poor. Thus, most financially strapped folks who need such quick loans would still be able to get them but without devastating annual percentage rates of 400 percent or more.
Bradley also stressed that loosening banking regulations to allow more community banks to make such small loans would give payday lenders a run for the money and allow borrowers a broader range of financial institutions to patronize and with less risk. These are all good, market-based solutions.
So in the context of such wisdom, one might well question the logic behind the Waco City Council’s approval on first reading Tuesday of an ordinance that limits the size of local payday and auto-title loans based on the borrower’s income and limits the number of times a loan can be renewed. Yet it’s hard not to cheer the council’s move. Pastors, bankers, professors, nonprofit leaders and others involved in a local group called Citizens for Responsible Lending have been pushing this ordinance a while now.
They note how more than $9.8 million was spent just on exorbitant and crippling fees on these loans in Waco in 2014, how the average payday borrower here must refinance the loan seven times, how that borrower must pay $290 for every $100 borrowed and how failure by unwitting borrowers to ever get atop these vicious loan cycles winds up damaging their credit scores, in turn making it more difficult for them to procure housing.
And they outline the utter incongruity of local business leaders, churches and nonprofits coming together in an unprecedented way to battle chronic poverty while payday lending continues to plague borrowers ignorant of the high costs involved in patronizing such establishments. One can see why the Citizens for Responsible Lending movement has gained such momentum, even as state officials have twiddled their thumbs.
In fairness to city leaders, they did wait for the Texas Legislature to do something about it last year. And, again, it did nothing. General conclusion by some of us: The payday lending industry has lobbyists with very deep pockets, which means state legislators are reluctant to right such wrongs by leveling the field a little. It’s not like groups such as the Texas Catholic Conference haven’t pushed reforms vigorously.
“I’ve struggled with this since we first started talking about it, that this isn’t what we (the city) do best (regulating financial institutions) and it’s not our job,” Mayor Malcolm Duncan Jr. said just before the council’s 5-1 vote to approve the ordinance. “But we’re all past the point of hoping that Washington or Austin are going to address this. I think Austin (state government) is perfectly capable of establishing oversight.”
Till state and federal officials start looking at reforms, the mayor told his colleagues, “I think we have seen evidence that the 30 cities that have adopted this ordinance have been able to make a difference in the access to these businesses, which is the first step we can take as a community.”
Dynamic free-market champions can lament this action. We do. But just as state government justifies certain of its actions in the face of ineffectual resolve by the federal government, local governments are justified to act when state legislators fail them. In short, cities such as Waco must act. The ordinance passed Tuesday with significant community support is as much a testament to failure by the Texas Legislature as it is about local predatory lending. Meanwhile, both city and community leaders must redouble efforts to make sure Waco’s poor can obtain small loans and survive tough times.