PAYDAY LOANS – The City of Arlington completed its first reading of a proposed payday ordinance last week, which will be again read in another week or two, and unless something changes, it will pass unanimously. Though this little missive is unlikely to have an impact on the process, I offer it so that council members might take a breather and consider the impact of the proposed ordinance.
I contend that the proposed ordinance only damages the very people that its proponents seek to help. It actually hurts the poor by raising the cost of doing business with them and denying them options.
During the first public reading and hearing on the ordinance, proponents told several stories about how some people had taken payday loans and had struggled to pay them back. But none of the new restrictions will do anything to make the lives of those individuals better or would have stopped their sob story from occurring. Nor will the new restrictions protect anyone or prevent anyone from taking advantage of anyone.
In fact, no one even testified as to how these restrictions will prevent anyone from taking advantage of anyone. Not one.
One witness who testified in favor of the bill stated that she went to a payday loan organization, looked at the offer, and decided not to use their services. Yes, the story of a woman who looked at a deal and rejected the offer is supposed to be evidence in favor of the idea that these facilities need more regulations. Incredible.
The proposed restrictions will require registration of payday institutions and establish penalties for people who don’t register. It also makes illegal any loan in an amount greater than three percent of gross income or 70% of the retail value of a vehicle, and would disallow installment payments of less than 25% of the loan principal. (Staff report here.)
As a demonstration of how badly this law is written, it states that consumers who cannot read can require the lender to read the contracts out loud to the client. Until last week, the law said that it had to be in the language of preference of the clients, whatever it may be, but even after amendment, the Arlington City Council is requiring that a client can require the loan agency to read the contracts in English, Spanish and Vietnamese. And we aren’t even talking about who is going to enforce this law.
So there is your conservative city council…requiring the city’s businesses to read contracts in multiple languages to its consumers, basically because the businesses are unpopular and the Council has utterly failed to even bother asking the business community to discuss the matter before presenting it fait accompli. (“Fait accompli” is Latin for “Hey, the deal is done and too bad you weren’t around to have an impact before we decided to hurt the economy as much as possible by driving short-term loans out of the city borders and damaging the 70 businesses that each have employees inside the city. Sucks to be you.”)
What these guys don’t realize is that “doing something” in this case is going to drive consumers to even less desirable sources of cash, such as off-shore lending organizations which do not have to worry about city regulations.
What our council doesn’t realize, because they depend only on the information sources who tell them what they want to hear, is that this law won’t help anyone. Let me say it clearly – if you want to help poor people who use these services, this law will make their options worse, not better. It does not give them money to handle the crisis that drove them to these situations. It raises the cost of doing business for those who would serve those individuals, which cannot help those this law purports to help.
A third of this legal practice concerns bankruptcy. About a quarter of the bankruptcies we file include some sort of high interest short-term loan, and that’s beside those who are near bankruptcy, but after a consultation, we decide it is not the best option. Though this office won’t file a bankruptcy for $500, there are high volume bankruptcy mills who will file a chapter 13 bankruptcy for not much more than that, and generally give bad service which often do not accomplish the fresh start usually sought.
Eliminating a potential source of income to help someone get by a crisis is a good way of creating bad bankruptcy filings which are cheap to get going, but will ultimately fail – that approach makes for a far worse end result than a high interest short-term loan.
And we aren’t even talking about the coming ordinance that will require payday loan companies to do business from stand-alone buildings, instead of the strip mall locations more common. The obvious intent is to stop any new businesses from opening. How does this help poor people again?
During the Arlington City Chamber of Commerce discussion about this industry, I asked the proponent why she doesn’t start her own payday loan organization. Why not show everyone that you are more than just another liberal interest group looking to raise money by going after unpopular businesses?
Of course she had no answer. She’s not competent to run so much as a lemonade stand. But hey, it’s easy to say you are helping people by passing registration laws.
Warren V. Norred
P.S. I have never advised anyone to get a high-interest short-term loan. It’s rarely the best move from my perspective, and if someone is my client receiving advice, we’ll find another way, generally speaking. This essay is not a defense of payday loans, but a statement that the regulations that Arlington’s City Council have drawn up are a path to making things worse, and not better, in every conceiveable way.
P.P.S. And no, I have no stock in any payday loan company, and am not paid to write this. I just hate bad public policy that is asserted to help people but instead only hurts them.