GALVESTON — The island could consider following the example of Houston and other Texas cities in creating new regulations for payday lenders.
The City Council discussed the possibility during a workshop meeting Thursday.
A growing number of Texas cities, including Houston, Austin, Dallas, El Paso and San Antonio, have put limits on payday and auto-title lenders through local ordinance changes.
The short-term, high-interest loans provided by storefront lenders have been criticized for skirting usury laws for years, using loopholes to charge high interest rates. Critics of the industry claim it also preys on low-income and financially uneducated people.
“We have people who are doing business with these institutions that really don’t understand what they’re getting into when they sign on the dotted line,” said District 3 Councilwoman Elizabeth Beeton. “They’re being played, and as soon as they sign, they find themselves in a nightmare.”
Ann Baddour, a senior policy analyst with Texas Appleseed, a social justice advocacy group, told the council that there were at least eight active payday loan companies in the city. That number does not include lenders who are not registered with the state’s Office of Consumer Credit Commissioner or who operate as auto-title lenders.
Baddour presented the council with a sample ordinance that would place a local cap on the interest rates that could be offered by lenders in the city.
“There are no restrictions on what they can do,” Baddour said of the current state of payday lenders. “These businesses are actually not lenders, but loan brokers.”
Most of the council members, along with City Attorney Dorothy Palumbo, said more research into the topic was needed before a draft ordinance was proposed. They also expressed concern that an ordinance could draw lawsuits from the businesses that would be regulated.
“If you don’t want these to come in your community, the best way to do that is to create a community where these aren’t needed,” said District 4 councilman Norman Pappous.
The council took no action on the issue on Thursday. The topic will likely be left for the next City Council, which will be installed after the May 10 municipal election.
The city does have some rules in place to regulate payday lenders, under its zoning ordinances.
In 2010, the city changed its zoning rules to require that retail lending facilities receive specific use permits before being constructed, and to prevent the businesses from being placed within a half-mile of each other.
Contact reporter John Wayne Ferguson at 409-683-5226 or firstname.lastname@example.org.