An ordinance regulating payday and auto title lenders passed Waco City Council on Tuesday on its first reading, with the council voting 5-1 in favor.
The ordinance, identical to those in some 30 other cities, limits the size of payday loans based on the borrower’s income and limits the number of times a loan can be renewed.
District 3 Councilman John Kinnaird was the lone dissenter, saying the city should instead focus its efforts on lobbying for state regulation of payday lending.
Pastors, bankers, professors, nonprofit group leaders and others involved in a local group called Citizens for Responsible Lending have been pushing the council to pass the ordinance to protect low-income people from getting trapped in a cycle of debt.
The short-term, small-dollar loans can carry an annualized interest rate of more than 500 percent and are often rolled over multiple times.
“We know this isn’t a silver bullet, and it’s not going to end all poverty, but it is a piece,” said Alexis Christensen, a leader of the group. “When these things work in tandem, it brings about community change.”
Waco has 36 auto title and payday lenders, which collected $10 million in interest in 2014 and repossessed 664 cars, according to the nonprofit Texas Community Capital.
Jeremy Everett, director of the Baylor University-based Texas Hunger Initiative, said a 2014 survey by his Waco regional office of clients at area food pantries found that nearly a third of those surveyed said their finances were affected by payday loans.
“I’ve seen few practices more predatory on low-income households than payday loans,” Everett said.
Janie Martinez, director of education at the Care Net Pregnancy Center, said payday loans often stand in the way of her clients having a stable financial condition.
“Our families live paycheck to paycheck,” Martinez said. “I met a mother of four children who had taken out a $400 payday loan, but her fees were currently $1,000.”
Cheryl Pooler, homeless liaison for Waco Independent School District, said the payday industry’s “vicious lending practices” threaten to undo the progress the community makes on fighting poverty.
“No family should ever have to choose between their food and their house and the insanely high interest rate on a payday loan,” Pooler said.
Councilman Dillon Meek urged the council at a retreat last fall to pass the ordinance. Meek said he was gratified to see “a diverse cross section” of Waco line up behind the ordinance.
“The community came together,” he said after the meeting. “It was democracy working at its finest. It was a privilege for me to be a part of it.”
Councilman Kinnaird, a banker, said he supports the aim of reining in payday lenders but not the ordinance.
“I wholeheartedly agree that it’s an issue that deserves attention,” Kinnaird said. “The industry as a whole needs regulation, but it’s better done at the state level. We as a city do many things very well, but I don’t think regulating the financial industry is one of them.”
Councilman Kyle Deaver said he shares Kinnaird’s reservations about the city’s practical ability to regulate lenders, but he is willing to give it a try. He commended Kinnaird for getting the ball rolling for a nonprofit “community loan center” that now serves hundreds of Waco city and school employees with lower-interest alternatives to payday loans.
Mayor Malcolm Duncan Jr. said the state is the proper level of government to regulate payday lenders, but he doesn’t want to wait for legislators in Austin. Duncan said the city needs to keep lobbying for state regulation.
“We should continue our efforts in that vein, but in the interim, we’ve seen evidence that in the 30 cities that have adopted this ordinance, it’s made a difference in access to those businesses,” he said. “It’s the first step we can take as a community.”
Duncan added that the city should be vigilant about any “unintended consequences” to the regulation that could actually hurt low-income people.
“I would like the community to let us know how this plays out, both for the regulated industry and customers,” Duncan said.