In a strong move last year, Houston Mayor Annise Parker supported the capping of payday loans to curtail what she called 'an unscrupulous racket that exploited poorer families'. The decision came in the wake of numerous complaints regarding exorbitant interest rates charged by predatory lenders.
Mayor Parker confirmed that the Houston City Council would pass the bill during the next voting session, thus following precedents set by other US states like Dallas, Saint Antonio and Austin. The lending industry has sued the Austin and Saint Antonio administration for what they term as a 'biased law'. But the payday loan sector in Houston has promised not to sue the Houston administration upon passing of the law. Their decision follows a compromise deal worked out by Houston City Attorney David Feldman.
Parker however denies feeling intimidated by payday loan lenders. She calls their business one that 'exploits the vulnerabilities of people in their quest for profits'.
How do Payday Loan Lenders Skirt Legal Caps and Limits?
The problem is that payday loans are lent to borrowers at outrageous interest rates because the private lenders are not obliged to adhere to the legal limits that are applicable mainstream lending institutions (like banks). Look at this site for example for payday loans charges. Statistics indicate that Houston (which has 10 counties) is home to about 3400 payday loan lenders. The results also show that most borrowers resort to expensive refinancing because they are unable to repay the loan the first time.
Anna Babin, President of United Way of Greater Houston, has expressed her unequivocal support of Parker's bill saying that her group of volunteers stumbled upon hundreds of families sunk in debt after borrowing too many payday loans. The problem was typically not the first payday loan but the subsequent refinancing options that left them high and dry.
For example, families that had borrowed a sum like $500 had to pay almost $190 in interest and extra fees every 2 weeks which ran up a debt of nearly $700 at the end of a 3-month period.
Legal Limits Proposed by the New Ordinance
The new ordinance aims at cutting down the legal borrowing limit to 20% of the applicant's gross salary. This is 10% lower than 35% which was the original figure in David Feldman's original report. He was of the opinion that consumers should not be cut off from access to credit in the event of emergencies. In addition, payday loans could be offered for refinancing no more than 3 times according to the new state law.
Mayor Parker confirmed that the Houston City Council would pass the bill during the next voting session, thus following precedents set by other US states like Dallas, Saint Antonio and Austin. The lending industry has sued the Austin and Saint Antonio administration for what they term as a 'biased law'. But the payday loan sector in Houston has promised not to sue the Houston administration upon passing of the law. Their decision follows a compromise deal worked out by Houston City Attorney David Feldman.
Parker however denies feeling intimidated by payday loan lenders. She calls their business one that 'exploits the vulnerabilities of people in their quest for profits'.
How do Payday Loan Lenders Skirt Legal Caps and Limits?
The problem is that payday loans are lent to borrowers at outrageous interest rates because the private lenders are not obliged to adhere to the legal limits that are applicable mainstream lending institutions (like banks). Look at this site for example for payday loans charges. Statistics indicate that Houston (which has 10 counties) is home to about 3400 payday loan lenders. The results also show that most borrowers resort to expensive refinancing because they are unable to repay the loan the first time.
Anna Babin, President of United Way of Greater Houston, has expressed her unequivocal support of Parker's bill saying that her group of volunteers stumbled upon hundreds of families sunk in debt after borrowing too many payday loans. The problem was typically not the first payday loan but the subsequent refinancing options that left them high and dry.
For example, families that had borrowed a sum like $500 had to pay almost $190 in interest and extra fees every 2 weeks which ran up a debt of nearly $700 at the end of a 3-month period.
Legal Limits Proposed by the New Ordinance
The new ordinance aims at cutting down the legal borrowing limit to 20% of the applicant's gross salary. This is 10% lower than 35% which was the original figure in David Feldman's original report. He was of the opinion that consumers should not be cut off from access to credit in the event of emergencies. In addition, payday loans could be offered for refinancing no more than 3 times according to the new state law.