The city of El Paso, Texas is reviewing whether to make a zoning change that would limit where payday and auto loan companies can operate.
If the zoning amendment is passed at a City Council meeting on Monday, it would prevent credit access business and pawn shops from opening within 1,000 feet of each other, 300 feet of residential districts or 500 feet of any freeway. Any change would only impact future payday loan companies or pawn shops. Businesses now open will not be in violation.
The businesses would not be allowed to open in shopping centers or be connect with another business, such as gas stations and grocery stores. A new store would not be allowed to be a pawn shop and credit access business.
El Paso earlier this year became the fourth Texas city to put a payday loan ordinance into effect, limiting the short-term, high-interest loans to 20% of a borrower's gross monthly income and auto-title loans to either 3% of the borrower's gross annual income or 70% of the vehicle's value. Borrowers can only renew these loans three times.
The ordinance also requires payday and auto loan companies to register with the city at an initial cost of $390, maintain records of all loans for three years and make them available to the city for inspection upon request. Businesses that violate the ordinance can face fines of as much as $500 for each infraction.
The controversial city ordinance was approved last year. Lenders were given 60 days to register their business with the city as the ordinance requires. It also requires payday lenders to provide customers with a form - in English and Spanish - referring them to credit counseling.
Payday loans are small cash advances that usually have a two-week or monthlong loan term and high interest rates and fees. Borrowers can renew the loan by paying the rates and fees, but they retain the same balance. Auto-title loans allow borrowers to use their car titles as collateral for a typical one-month term. If the borrower defaults, the lender seizes the car.
Opponents of the practice applauded the new ordinance, saying the practice they call "predatory lending" exploits the poor with high-interest loans that keep them in a cycle of debt.
Supporters, including credit access businesses, said payday and car-title lenders provide money to people in emergency situations who otherwise might not qualify for traditional loans.