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City Council Places Limits on Payday Lenders and Borrowers

Tuesday, January 8, 2013 - 8:41pm

Back and forth went the argument in city council today, speaker after speaker all certain about their opposite opinions....that payday loans ruin El Pasoans who borrow more than they can repay...and that pawnshops and other payday lenders provide an important service in a tough economy.

Lender John Bloss told the council, "We look at how much money after you pay your food after you pay your gas, how much money you have left over, and then we don't loan outside of that. We don't become predators, that's not why were here. We care about people and when people come in to pay off their loan we celebrate with them."

But Jose Espinoza, a volunteer with AARP, countered, "These businesses downplay the risk of a loan, thrive on driving borrowers into debt, and push El Paso families deeper into financial hardship."

When the smoke cleared council passed representative Susie Byrd's ordinance 6-2. Robinson and Holguin voted against it. Starting July 1 El Pasoans may only borrow up to 20 percent of their gross monthly income, a move designed in part to protect people from themselves, and the 20 or 23 percent interest they face in paying the loan back. And now instead of just catching up by paying interest charges, every payment will at least partially pay back the principle on a payday loan, so that a borrower isn't caught forever in a spiral of debt.

Supporters of the ordinance say they are happy for borowers, assuming they are less likely now to get in trouble with a lender. Opponents--mostly the lenders themselves, say legal challenges are sure to follow.

 

Highlights of the ordinance:

* Limiting payday loans to 20% of the borrower's gross monthly income.

* Limiting auto title loans to the lesser of 3% of the borrower's gross annual income or 70% of the vehicle value.

* Limiting loans to no more than four installments or three rollovers or renewals (a rollover or renewal is defined as an extension of consumer credit made within seven days of the previous extension of credit).

* Requiring the proceeds from each installment or renewal to reduce the loan principal by 25%.

* Requiring that every contract be written in a language the borrower can understand, or be read in its entirety to any borrower who cannot read.

* Requiring the lender to provide to the borrower a form created by the city, which references non-profit agencies that provide financial education and agencies with cash assistance programs, and contains general information regarding extensions of consumer credit.
by 25%.

*   Requiring that every contract be written in a language the borrower can understand, or be read in its entirety to any borrower who cannot read.

*   Requiring the lender to provide to the borrower a form created by the city, which references non-profit agencies that provide financial education and agencies with cash assistance programs, and contains general information regarding extensions of consumer credit.

 

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