American Debt: 2003-2014

Value propositions and barriers to housing

The Threat to Detroit’s Rebound Isn’t Crime or the Economy, It’s the Mortgage Industry

Redlining is alive, well and dangerous in Detroit.

Story by Anna ClarkTwitter

Published on Dec 7, 2015

 

As a young married couple, Steven and Corey Josephson chose to begin their lives together in Detroit. They came from Greeley, Colorado, a city that couldn’t be more different. It was founded as an experimental utopian community; its majority-white population has more than doubled since 1970; and its unemployment rate is lower than the national average, and about half that of Detroit.

But in August 2014, they left. Corey, a theater and English teacher, grew up in Michigan, and Steven found a position in Detroit’s Teach for America program, teaching science to the youngest kids at Coleman A. Young Elementary School.

Along with their beagle, Baley, they moved into a house in northeast Detroit near 8 Mile Road. “We loved the house, we loved the neighbors,” Steven Josephson says. They were renting, but “homes are just so cheap here, it makes more sense to buy.” So they approached their landlord about purchasing the home. At first, everything moved smoothly — but then, Josephson said, the landlord backed out.

Read more here.

Garland adopts strong payday lending regs

(Earlier this week the Garland City Council adopted Dallas' "Model Ordinance" to regulate payday lending in that city.  This makes the 16th city to provide protection to its citizens.  Below you will read the rationale behind the ordinance.  Thanks to CitySquare's Public Policy efforts led by Rev. Gerald Britt and supported by Keilah Jacques.)

GENERAL TALKING POINTS

PAYDAY & AUTO TITLE LENDING ORDINANCE      

These are the key messages we, as a coalition, will use to advocate consistently for the Model City Ordinance.  Please utilize these key messaging points to ensure we all stay on message and deliver a powerful, consistent message to City Council.

Key Messages for City Council Visits:

Ø  Garland’s citizens deserve the same protections as other major Texas cities, including Dallas, Austin, Houston, El Paso, and San Antonio (now totaling 14 statewide).  I am here today to ask for your support of a strong ordinance modeling other major cities in Texas ordinances on payday and auto title lending.

o   In 2005, Garland had 18 payday and auto title lending storefronts and it has grown by around 40% to a total of 32 storefronts in 2014.

Ø  Adding Garland to the list of cities with strong payday and auto title ordinances will add to the push for statewide reform.  

Ø  High cost payday and auto title loans damage our city and citizens by:

• exacerbating already desperate financial circumstances of the borrowers.  Payday and auto title loans often lead to further financial distress for borrowers—statewide 35,000 cars were repossessed in 2012 due to auto title loans. Loss of transportation for Texans can mean loss of employment further compounding a desperate situation.
• having a payday loan increases borrowers’ risk of having their bank account involuntarily closed and nearly doubles borrowers’ chances of having to file for bankruptcy.
• draining nonprofit resources and undermine investments in family financial stability.  A 2012 Texas survey found 32% of nonprofit clients seeking financial assistance were in trouble with a payday or auto title loan.
• diverting critical business tax revenue away from our city. It is estimated that Garland loses approximately $1.2 million in sales tax revenue each year.  Currently, payday and auto title lenders are draining approximately $14.1 million a year from our local economy in fees alone.  This is on top of the actual loan amount! 

Ø  Payday and auto title lenders take advantage of unfair market competition.  While they are not regulated at all, less expensive options available to consumers are regulated.  Why should payday and auto title lenders be exempt from any time of regulation or oversight?

Ø  Local advocates stand united with advocates across the state on passing the Model Payday Ordinance.   Listed below are its main provisions, for reference, if needed.

1.      Require Credit Access Businesses to obtain a valid certificate of registration from the City of Houston annually.

2.      Limit payday loans to 20 percent of the borrower's gross monthly income.

3.      Limit auto title loans to the lesser of 3 percent of the borrower's gross annual income or 70 percent of the vehicle value.

4.      Limit loans to no more than four installments or three rollovers or renewals (a rollover or renewal is defined as an extension of consumer credit made within seven days of the previous extension of credit).

5.      Require the proceeds from each installment or renewal to reduce the loan principal by 25 percent.

6.      Require that every contract be written in a language the borrower can understand, or be read in its entirety to any borrower who cannot read.

7.      Require the lender to provide to the borrower a form created by the City which references non-profit agencies that provide financial education and agencies with cash assistance programs and contains general information regarding extensions of consumer credit.

Ø  We urge your support for the Model Payday Ordinance so that:

• We can limit the costs to the City through lost sales tax revenue and unfair market competition
• We can limit the costs to our families through high cost, predatory products providing protections against predatory practices.
• Garland can join other cities as a united front in sending a strong signal to state legislators that predatory practices must stop.

 Potential Questions and Answers:  These are potential questions and positions you may hear when discussing the Garland ordinance. 

1. I don’t want a Lawsuit.

If the ordinance is going to be meaningful and contain strong consumer protections, you will be sued by the industry.  Enshrining the status quo only sanctions predatory practices and allows more borrowers to be trapped in a cycle of debt.  In addition, Dallas defended the suit in house and has temporarily won the lawsuit. 

2. I believe in a Free Market

• We also believe in a free market and do not wish to push the industry out of business.  However, as things stand currently:  Banks, credit unions, credit card advances, pawn shops and finance companies are lenders that follow state rate and fee caps for consumer lending and serve sub-prime customers.^[1]   These alternative products are regulated, unlike Payday and Auto Title lenders.  This sets up unfair market competition.

3. The city does not have the budget for enforcement.

• Enforcement is a tricky issue and we suggest that you turn for advice and suggestions from other cities that have passed ordinances.  A suggestion is to work in enforcement and its issues into the ordinance.

4. There aren’t enough votes on City Council.

• We are here to assist you in working with your fellow council members.  We have many advocates from the business community, over faith leaders, and non-profits all willing to assist you in this effort.

5. Businesses will just move outside of Garland.

• We agree, but we need to begin somewhere.  We are also willing to assist our outlying communities with education and ordinance language to broaden the scope and impact of a strong consumer ordinance.  Garland itself is becoming a haven for lenders due to the restrictions in Dallas—that is why it is up to cities like Garland to form a unified front in helping economically vulnerable citizens.  Garland passing the Model Payday Ordinance is key; if Garland goes a down a different path from the other cities, we will weaken our position during the next legislative session, leaving room for the industry to pass weak regulation that will pre-empt all of the cities’ stronger ordinances.

6. Aren’t these the only option for people that just need a small loan?

• No, they are not.  Less expensive options include finance companies, pawn shops, credit card cash advances, credit unions and banks.  However, each of these alternatives is regulated, including pawn shops.  Why should all of these options be regulated, while payday and auto title lenders do business without any regulation?

7. Won’t this ordinance cause these lenders to go out of business?

• No.  Lenders still have flexibility and can charge the same fees (along with the interest that goes to the third party lender).  We are just asking that borrowers have the ability to pay off the loan within a reasonable time frame. 

8.  Why can’t we just wait for the Texas Legislature to provide regulations?

• To pass meaningful regulation, the Legislature needs political will—something that is provided when cities unite in passing a uniform ordinance regulating payday and auto title lenders.  The next legislative session is a year away and even given real reform, in the meantime, many Garland residents will become trapped in the cycle of debt.  An ordinance with real reforms to these predatory products can help borrowers sooner. 

---

[1] Texas Office of Consumer Credit Commissioner list of 342 E and F lenders, October 2012.  Texas Office of Consumer Credit Commissioner list of licensed pawn shops, August 2013.

Sharks in the water!

Yesterday's editions of The Dallas Morning News published this opinion essay from the paper's editorial staff. It is gratifying to see the work of CitySquare's public policy team and those of our growing number of partners have good results in affecting public values and opinion. Much work remains to be done on the issue of predatory lending, but we're making progress! Thanks, Gerald and team for your hard work.

I've posted the editorial statement below.

Editorial: It’s time for tighter oversight of payday lenders

08 July 2012 10:38 PM

The free-enterprise advocate in us says that payday lenders should operate wherever the market takes them. It’s a business, after all. If people don’t want the product they sell, the market will show them the exit door.

The problem is that quick-cash lenders don’t operate under normal market conditions. Their market, in fact, operates exactly the opposite — enticing desperate people away from what should be their very first option, economizing in every way. When you are short on money, you buy cheaper food, find a lower-rent apartment.

Banks make their services scarce for people in trouble. There’s no cheap, off-brand place to shop. For many consumers, the only choice is to seek out a title lender, who will accept a car or house title as collateral on a short-term, high-interest loan. Like a shark hunting wounded prey, the companies profit by exploiting the customer at his weakest moment.

Texas, which has some of the loosest regulations in the country for payday and title lenders, is witnessing an explosive expansion of these businesses. Oversight is nowhere near what it should be as some lenders charge usurious amounts. Effective rates of 300 percent or more are common, and when the customer can’t pay, his car or house becomes the lender’s property.

In a recent study by Texas Appleseed and the Anti-Poverty Coalition of Greater Dallas, 37 of the 241 short-term lenders in the city were surveyed on their effective rates and the legally required loan information they make available to clients. As Gerald Britt Jr., vice president of public policy at CitySquare, noted on our Viewpoints page last week, 41 percent of outlets surveyed did not abide by legal requirements and offered misleading information about the risks of quick-cash loans.

They get away with it because lawmakers who seek tighter oversight run into an extremely well-funded lobby. Quick-cash lenders donate heavily to politicians and intimidate city governments with the threat of expensive litigation.

Fort Worth-based title lender Cash America International is the No. 1 contributor to Dallas GOP Rep. Pete Sessions. Rep. Jeb Hensarling, R-Dallas, ranks No. 10 in the House for contributions from the payday loan lobby, according to OpenSecrets.org.

The industry donates generously to Democratic and Republican legislators alike at the state level. Dallas Mayor Mike Rawlings previously sat on the board of directors of Ace Cash Express and has defended such services as necessary, particularly in southern Dallas, to serve the “under-banked.”

What about protecting the over-exploited? As this newspaper noted in a Points special section last October, there is a lopsided presence of quick-cash loan shops in the poorest neighborhoods of southern Dallas and an unusually strong concentration of these loan shops in Dallas’ biggest crime hot spots — both north and south. We do not need more of them.

If legislators won't to stand up to this powerful lobby, reject their donations and impose tougher regulations, the least Dallas and other local governments can do is ensure that existing laws are enforced vigorously.

Stop treating the financially vulnerable as shark bait.

Follow the money

A sampling of campaign donations by members of the quick-cash loan industry from 2008 to present:

Recipient / Donor / Amount

Rep. Pete Sessions, R / Cash America Int’l / $37,500

Rep. Jeb Hensarling, R / Cash America Int’l / $24,500

State Rep. Helen Giddings, D / Cash America Int’l / $5,750

State Sen. Royce West, D / Cash America Int’l / $5,000

State Rep. Raphael Anchía, D / Cash America Int’l / $3,500

State Rep. Marc Veasey, D / Cash America Int’l / $2,500

Texans for Joe Straus / Ace Cash Express / $34,000

Texans for Rick Perry / Ace Cash Express / $22,000


Mexican-American Legislative Caucus / Consumer Service Alliance of Texas* / $20,000


Texans for Greg Abbott / Ace Cash Express / $12,500

SOURCES: Federal Election Commission, Texas Ethics Commission