Facts

Unfounded crusades against the industry

Multiple groups in Texas are pressuring city governments to pass ordinances designed to limit the ability of Texans to access credit. These local ordinances – which conflict with state regulations – negatively impacts safe and flexible access to credit for thousands of Texans, driving them to unsafe and unregulated lending sources to make ends meet.

Texas has one of the highest rates of underbanked citizens in the nation, with 33.1 percent of our citizens having limited or no access to traditional credit services offered by retail banks. That means that nearly 7.9 million Texas residents (adults aged 18 and above) are underbanked. Many of these individuals choose to rely on financial institutions other than banks to meet credit needs for our residents.

 

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Passing an ordinance puts your city at risk of significant litigation costs. 

Local ordinances passed by cities across Texas are not enforceable and are pre-empted by state law.  Since 2011, more than 40 cities have passed local financial ordinances, yet not one violation was prosecuted until recently. Earlier in March and April of 2017, the City of Austin cited two credit access businesses for violation of its financial ordinance.  In both cases, the cases were dismissed citing that the ordinance was pre-empted by Texas State Law.   The Austin County Court of Law disagreed and the case is currently under appeal.

Read the Decisions

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Cities don’t have the funds or ability to properly enforce and regulate the ordinances.

The financial strain that these ordinances can place on local governments also is a huge concern. To enforce these ordinances, local governments must create new departments and hire and train enforcement personnel, which means tax dollars being taken away from police, fire, and infrastructure improvements.  We believe these ordinances are a legislative overreach and not the proper role of local governments.

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Local ordinances do not curb loan demand.

Studies show that local financial ordinances have no effect on short-term credit demand. Short term credit customers simply go elsewhere to meet their financial needs including unlicensed, unregulated, and offshore internet lenders.  According to the OCCC, after passing a financial ordinance, Austin did see a 13% decrease in storefront lending, but online lending increased by 19%.  Dallas and many other cities across Texas, saw a similar trend.

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Local ordinances drive up the cost of credit for consumers.

Eliminating credit options expose consumers to bank overdrafts (more than 1000% APR), utility shut off fees (more than 1000% APR), and other less affordable forms of credit.  Most people simply turn to unlicensed, unregulated, and offshore lenders – a much more expensive option than store front credit access businesses.  Many consumers incur a “gas” tax, by simply driving outside the community to receive a loan.

The local financial ordinance claims to “protect” consumers, when in fact, it actually drives up the cost of credit and limits competition in the market place.

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If a city council can tell you how much you can or can’t borrow, what is next? Where does it stop? 

By passing a local ordinance that restricts an individual’s right to chose what credit products are best, what is next?  Does this give our local governments the ability to tell our citizens how much, or how long, of a mortgage can they receive?  Can a local government tell its citizens what kind of credit card they can have? Or car loan?

Passing an ordinance that restricts consumer choice sets a dangerous precedent within the local government landscape.

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The free market will decide, no need to bloat local government

When a city passes an ordinance limiting access to credit, it abolishes local jobs and interferes with free-market principles. Furthermore, unlike the state and federal government, local governments do not have the expertise or resources needed to effectively enforce these ordinances. They can’t perform “on-site bank exams” or carry out other activities needed to regulate these businesses. These ordinances simply make local governments larger – by creating new departments and hiring and training new people, such as auditors – needed to regulate these businesses, something the state and federal governments already do. In addition, these ordinances have the potential to cost taxpayers hundreds of thousands of dollars in legal fees when they are successfully challenged in court.