Midland, Texas is the latest in a growing number of cities proposing an ordinance that affects payday lenders, or credit access businesses.

The proposed ordinance, discussed but not voted on during a Midland City Council meeting Tuesday, would require payday lenders to annually register with the city, make restrictions on the loan amounts and the refinancing, and file documentation for each loan that is made, according to the Midland Reporter-Telegram.

City officials believe payday lenders operate within a loophole of the Texas Finance Code and act as a middleman between banks and consumers. As the middleman, the payday loan businesses take a loan from a bank, pass the money to a customer needing a loan, and then charge the customer costly fees that are not considered interest.

Some of the restrictions include limiting the loan to 20% of the consumer’s monthly income, limiting the loans to no more than four installments, and prohibiting lenders from refinancing or renewing a loan that is payable in installments.

Nationwide, 15 states either ban payday loans or cap the interest rate at 36%.

Idaho, South Dakota and Wisconsin have the nation’s highest interest rates for payday loans, according to a report released this week by the Pew Charitable Trusts. That report found rates in those states are high because they impose no legal limits on payday loans. The study urges states to limit payments to "an affordable percentage of a borrower’s periodic income," saying monthly payments above 5% of gross monthly income are unaffordable.

Payday lenders in Idaho charge an average 582% annual interest on their loans, followed by South Dakota and Wisconsin (both 574%). In March, an Idaho Senate payday loan bill was signed into law that limits loans to 25% of a borrower’s gross monthly income. The bill also allows for setting up interest-free payment plans for consumers hitting a financial snag.

The Community Financial Services Association of America, a national trade association for payday loan businesses, denies the common criticism that payday loan customers are led into a cycle of debt, according to its website. It cites a Clemson University study that concluded, “there is not statistical evidence to support the ‘cycle of debt’ argument often used in passing legislation against payday lending.”

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