Dallas city officials are supporting a lender called Community Loan Center of Dallas that is designed to allow participants an alternative to the payday lending industry that the city has long battled and heavily criticized.
Employees of CLCD-enrolled companies will be able to apply online for one-year loans of up to $1,000, with no collateral required and no credit checks. The non-profit operation is billed as an alternative to the payday lending industry that the city has cracked down on in recent years for charging fees as high as 400%.
The default risk through CLCD, according to city officials, is reduced because loan payments are deducted directly from borrowers' paychecks.
"I've heard it over and over again from payday and auto title companies: 'Who else will lend to these poor people? That is why we have to charge 400 to 500%,' " said city council member Jerry Allen, at a news conference. "Guess what? We just came up with an alternative."
The city is joining CLCD as an employer thus making its 13,000 employees eligible for the loans, said Allen, a former banker. He said CLCD has $250,000 in funds and hopes donors can beef that up into the millions within one year.
CLCD plans to work with Community Loan Center of Texas, which has joined with nonprofits to launch similar lending programs in several Texas cities including: Austin, Houston, Laredo, Brownsville and Bryan/College Station. The group states its pilot program in Brownsville has been successful and self supporting, with $3 million in loans disbursed.
The proliferation of payday and auto title lenders, according to CLCD's website "proves there is a demand for short-term loans that are easily accessible, and the purpose of the small dollar loan program is to provide ready access to affordable credit while helping to create long-term financial stability."
The 5th District Court of Appeals in Dallas in May affirmed the dismissal of a lawsuit by payday and title lenders against the city's ordinances targeting the industry.
Dallas requires those lenders to register with the state each year, to meet strict record-keeping and inspection requirements and to restrict extensions of consumer credit. It levees penalties of up to $500 for each day of violations deemed to be a separate offense. City officials said the restrictions aim to reduce cases of abusive and predatory lending.
Federal regulators in July ordered Irving, Texas-based ACE Cash Express to pay $10 million in refunds and fines for illegal collection tactics. The Consumer Financial Protection Bureau accused ACE of pressuring consumers into taking out more loans by threatening lawsuits and criminal prosecution. The action included a $5 million penalty and a $5 million refund to consumers.
At the time, ACE countered that the allegations related "exclusively to some of Ace's collection practices prior to March 2012." The CFPB began supervising payday lenders in January 2012.
A CFPB report released in May highlighted illegal actions the agency has uncovered from overseeing the collections, consumer reporting and payday lending markets. That report covered supervisory activities between November 2013 and February 2014.