Payday Lenders Lose in Court Challenge to City of Austin Ordinance

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September 22, 2017 by Ann Baddour

Loan Shark Warning

The City of Austin ordinance designed to address harmful practices by payday and auto title loan businesses has overcome an important legal hurdle.  A Travis County Court found, in two  separate opinions, that the ordinance is not preempted by state law.

In March, a municipal court ruled that an important provision of the Austin ordinance, one that limits payday and auto title loans to four payments and requires 25% principal pay down with every payment, was preempted by state law.  The City appealed the ruling and the Travis County Court at Law Number Two today upheld the City position.  

This ruling is a huge win for Texas families.  Texas Appleseed, represented by pro bono counsel from Enoch Kever PLLC, submitted two amicus briefs supporting the City of Austin.  Our briefs were supported by key allies, including Texas Faith Leaders for Fair Lending, the Texas Christian Community Development Network, RAISE Texas, the Anti-Poverty Coalition of Greater Dallas, and Helping Hands of Belton.

Similar ordinances have been adopted in more than 40 cities across Texas, covering over 9 million Texans. The ordinances are making a difference for families.  State data for the Austin Metropolitan Statistical Area show that from 2014 to 2016, there was a 43% decline in the dollar amount of refinances for these high-cost loans and borrowers paid nearly $27 million less in fees to payday and auto title lenders.   During the same period, 1,291 fewer families had a car repossessed by an auto title lender.

Payday and auto title loans often mire families in a cycle of on-going debt and can carry interest rates of 500% APR and higher.  A 2015 economic impacts analysis by the Texas League of Women Voters found that payday and auto title lending caused $531 million in lost economic value and a loss of over 7,000 jobs.

This most recent ruling is yet another affirmation that cities can take these important steps to support the financial well-being of families and the local economies.