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HomeMy WebLinkAbout2137 09-27-2016 ORDINANCE NO. 2137 AN ORDINANCE AMENDING THE CODE OF ORDINANCES OF THE CITY OF EULESS, CHAPTER 18, "BUSINESSES," ADDING ARTICLE IV, "CREDIT ACCESS BUSINESSES," SETTING FORTH REGISTRATION REQUIRMENTS AND CREDIT EXTENSION GUIDELINES FOR CREDIT ACCESS BUSINESSES; PROVIDING THAT THIS ORDINANCE SHALL BE CUMULATIVE OF ALL ORDINANCES; PROVIDING A PENALTY FOR VIOLATIONS; PROVIDING A SAVINGS CLAUSE; PROVIDING A SEVERABILITY CLAUSE; PROVIDING FOR PUBLICATION; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the City of Euless, Texas, is a home rule city acting under its Charter adopted by the electorate pursuant to Article XI, Section 5 of the Texas Constitution and Chapter 9 of the Local Government Code; and WHEREAS, the City of Euless contains credit access businesses which provide payday loans and advances to consumers who work and reside within the City; and WHEREAS, the City Council of the City of Euless has determined that certain credit access businesses engage in abusive and predatory lending practices, offering easy money to those members of our community who are in a tight spot with onerous terms and fees; and WHEREAS, the practices of certain credit access businesses cause members of our community to become trapped in a cycle of short term, high interest loans resulting in large debt and huge payments; and WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who Borrows, Where they Borrow, and Why, (July 2012), wrote that "payday loans are sold as two-week credit products that provide fast cash, but borrowers are actually indebted for an average of five months per year." The report further noted that "on average, a borrower takes out eight loans of $375 each per year and spends $520 on interest;" and WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who Borrows, Where they Borrow, and Why, (July 2012), also noted: "How much borrowers spend on loans depends heavily on the fees permitted by their state. The same $500 storefront loan would generally cost about $55 in Florida, $75 in Nebraska, $87.50 in Alabama, and $100 in Texas, even if it were provided by the same national company in all those states. Previous research has found that lenders tend to charge the maximum permitted in a state;" and WHEREAS, the Pew Charitable Trusts, in their publication entitled Payday Lending in America: Who Borrows, Where they Borrow, and Why, (July 2012), also stated that "the vast majority of borrowers use the loans on a long-term basis, not temporary one. Thus it seems that the payday loan industry is selling a product few people use as designed and that imposes debt that is consistently more costly and longer lasting than advertised;" and WHEREAS, the Community Financial Services Association of America (CFSA), the national trade association for companies that offer small dollar, short-term loans or payday advances includes the following in the "Member Best Practices" as listed on its Internet site (http://cfsaa.com/cfsa-member-best-practices.aspx): "Members shall not allow customers to rollover a payday advance (the extension of an outstanding advance by payment of only a fee) unless expressly authorized by state law, but in such cases where authorized will limit rollovers to four or the state limit, whichever is less." The need for consumer understanding was also outlined on this website: "A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate ("APR");" and WHEREAS, the Center for Responsible Lending, a non-profit, non-partisan organization, states on its internet site (http://www.responsiblelending.org/other- consumer-loans /tools-resources/fast-facts.html) that: "car title loans are based on the value of a borrower's car - the ability to repay the loans is not factor in the lending decision..."; "loan rates for a car title are typically 20-30 times that of rates charged by credit card issuers..."; "the average car title customer renews their loan 8 times..."; and, "on a $500 title loan, this average customer will pay back $650 in interest over eight months; the principal borrowed will be in addition;" and WHEREAS, lenders hold onto the motor vehicle title and when borrowers cannot continue to pay the fees, they can lose their vehicles, which can drastically affect the borrower's means of transportation for work and other essential household functions; and WHEREAS, the City Council of the City of Euless hereby finds and determines that the regulation of credit access businesses as set forth herein is in the best interest of the public and is in furtherance of the public health, safety, morals, and general welfare. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF EULESS, TEXAS, THAT: SECTION 1. All matters stated in the preamble are hereby found to be true and correct and are incorporated herein by reference as if copied in their entirety. Ordinance No. 2137, Page 2 of 10 SECTION 2. Chapter 18, "Businesses," of the Code of Ordinances of the City of Euless, Texas is hereby amended by adding Article IV, "Credit Access Businesses" to read as follows: ARTICLE IV. CREDIT ACCESS BUSINESSES Sec. 18-161 Short title and purpose (a) This article may be known and cited as "Credit Access Businesses Regulation." (b) The purpose of this article is to protect the welfare of the citizens of the City of Euless by monitoring credit access businesses in an effort to reduce abusive and predatory lending practices. To this end, this article establishes a registration program for credit access businesses, imposes restrictions on extensions of consumer credit made by credit access businesses, and imposes recordkeeping requirements on credit access businesses. Sec. 18-162 Definitions As used in this article: (1) Certificate of registration means a certificate of registration issued by the director under this article to the owner or operator of a credit access business. (2) Consumer means an individual who is solicited to purchase or who purchases the services of a credit access business. (3) Consumer's language of preference is the language the consumer understands best. (4) Credit access business has the meaning given that term in Section 393.601 of the Texas Finance Code, or successor section. (5) Deferred presentment transaction has the meaning given that term in Section 393.601 of the Texas Finance Code, or successor section. (6) Director means the City Manager or the person directed by the City Manager to enforce and administer this article. (7) Extension of consumer credit has the meaning given that term in Section 393.001 of the Texas Finance Code, or successor section. (8) Motor vehicle title loan has the meaning given that term in Section 393.601 of the Texas Finance Code, or successor section. Ordinance No. 2137, Page 3 of 10 (9) Person means any individual, corporation, organization, partnership, association, financial institution, or any other legal entity. (10) Registrant means a person issued a certificate of registration for a credit access business under this article and includes all owners and operators of the credit access business identified in the registration application filed under this article. (11) State license means a license to operate a credit access business issued by the Texas Consumer Credit Commissioner under Chapter 393, Subchapter G of the Texas Finance Code, or successor section. Sec. 18-163 Violations; penalty (a) A person who violates a provision of this article, or who fails to perform an act required of the person by this article, commits an offense. A person commits a separate offense for each and every violation relating to an extension of consumer credit, and for each day during which a violation is committed, permitted, or continued. (b) An offense under this article is punishable by a fine of not more than $500. (c) A culpable mental state is not required for the commission of an offense under this article and need not be proved. (d) The penalties provided for in Subsection (b) are in addition to any other remedies that the city may have under city ordinances and state law. Sec. 18-164 Defenses It is an affirmative defense to prosecution under this article that at the time of the alleged offense the person was not required to be licensed by the state as a credit access business under Chapter 393, Subchapter G, of the Texas Finance Code. Sec. 18-165 Registration required (a) A person commits an offense if the person acts, operates, or conducts businesses as a credit access business without a valid certificate of registration. (b) A certificate of registration is required for each physically separate credit access business. Sec. 18-166 Registration application Ordinance No. 2137, Page 4 of 10 (a) To obtain a certificate of registration for a credit access business, a person must submit an application on a form provided for that purpose to the director. The application must contain the following: (1) The name, street address, mailing address, facsimile number, email address and telephone number of the applicant. (2) The business or trade name, street address, mailing address, facsimile number, email and website address and telephone number of the credit access business. (3) The names, street addresses, mailing addresses, email addresses and telephone numbers of all owners of the credit access business, and the nature and extent of each person's interest in the credit access business. (4) A copy of a current, valid state license held by the credit access business pursuant to Chapter 393, Subchapter G of the Texas Finance Code. (5) A copy of a current, valid certificate of occupancy showing that the credit access business is in compliance with the Code of Ordinances of the City of Euless. (6) A non-refundable application fee as set out in the fee ordinance. (b) An applicant or registrant shall notify the director within 45 calendar days after any material change in the information contained in the application for a certificate of registration, including, but not limited to, any change of address, including email and website addresses and telephone number(s) and any change in the status of the state license held by the applicant or registrant. Sec. 18-167 Issuance and display of certificate of registration; presentment upon request (a) The director shall not issue to the applicant a certificate of registration until a completed application under Section 18-166 is received and approved. (b) A certificate of registration issued under this section must be conspicuously displayed to the public in the credit access business. The certificate of registration must be presented upon request to the director or any peace officer for examination. (c) Denial of application or revocation of registration. (1) An application may be denied for failure to comply with the requirements of this article, city ordinances or state or federal law. Ordinance No. 2137, Page 5 of 10 (2) A registration may be revoked for failure to comply with the requirements of this article, city ordinances or state or federal law. (3) Appeal. The denial of an application or the revocation of registration may be appealed to the City Manager. Sec. 18-168 Expiration and renewal of certificate of registration (a) A certificate of registration expires on the earliest of: (1) One year after the date of issuance; or (2) The date of revocation, suspension, surrender, expiration without renewal, or other termination of the registrant's state license. (b) A certificate of registration may be renewed by making application in accordance with Section 18-166. A registrant shall apply for renewal at least thirty (30) days before the expiration of the registration. Sec. 18-169 Non-transferability A certificate of registration for a credit access business is not transferable. Sec. 18-170 Maintenance of records (a) A credit access business shall maintain a complete set of records of all extensions of consumer credit arranged or obtained by the credit access business, which must include the following information: (1) The name and address of the consumer. (2) The principal amount of cash actually advanced. (3) The length of the extension of consumer credit, including the number of installments and renewals. (4) The fees charged by the credit access business to arrange or obtain an extension of consumer credit. (5) The documentation used to establish a consumer's income under Section 18-171. (6) If applicable, the documentation described in Section 18-172 for persons unable to read an agreement or extension. Ordinance No. 2137, Page 6 of 10 (b) A credit access business shall maintain a copy of each written agreement between the credit access business and a consumer evidencing an extension of a consumer credit (including, but not limited to, any refinancing or renewal granted to the consumer). (c) A credit access business shall maintain copies of all quarterly reports filed with the Texas Consumer Credit Commissioner under Section 393.627 of the Texas Finance Code. (d) The records required to be maintained by a credit access business under this section must be retained for at least three years. (e) The records required to be maintained by a credit access business under this section must be made immediately available for inspection by the director or a peace officer upon request during the usual and customary business hours of the credit access business. Sec. 18-171 Restriction on extension of consumer credit (a) The cash advanced under an extension of consumer credit that a credit access business obtains for a consumer or assists a consumer in obtaining in the form of a deferred presentment transaction may not exceed twenty percent (20%) of the consumer's gross monthly income. (b) The cash advanced under an extension of consumer credit that a credit access business obtains for a consumer or assists a consumer in obtaining in the form of a motor vehicle title loan may not exceed the lesser of: (1) Three percent (3%) of the consumer's gross annual income; or (2) Seventy percent (70%) of the current retail value of the motor vehicle. (c) A credit access business shall use a paycheck or other documentation establishing income to determine a consumer's income. (d) An extension of consumer credit that a credit access business obtains for a consumer or assists a consumer in obtaining and that provides for repayment in installments may not be payable in more than four installments. Proceeds from each installment must be used to repay at least twenty-five percent (25%) of the principal amount of the extension of consumer credit. An extension of consumer credit that provides for repayment in installments many not be refinanced or renewed. (e) An extension of consumer credit that a credit access business obtains for a consumer or assists a consumer in obtaining and that provides for a single lump sum repayment may not be refinanced or renewed more than three (3) times. Proceeds from each refinancing or renewal must be used to repay at least twenty-five percent (25%) of the principal amount of the original extension of consumer credit. Ordinance No. 2137, Page 7 of 10 (f) For purposes of this section, an extension of consumer credit that is made to a consumer within seven (7) days after a previous extension of consumer credit has been paid by the consumer will constitute a refinancing or renewal. Sec. 18-172 Requirement of consumer understanding of agreement (a) Every agreement between the credit access business and a consumer evidencing an extension of consumer credit (including, but not limited to, any refinancing or renewal granted to the consumer), must be written in the consumer's language of preference. Every credit access business location must maintain on its premises, to be available for use by consumers, agreements in the English and Spanish languages. (b) For every consumer who cannot read, every agreement between the credit access business and a consumer evidencing an extension of consumer credit (including, but not limited to, any refinancing or renewal granted to the consumer) must be read to the consumer in its entirety in the consumer's language of preference, prior to the consumer's signature. (c) For every consumer who cannot read, every disclosure and notice required by law must be read to the consumers in its entirety in the consumer's language of preference, prior to the consumer's signature. Sec. 18-173 Referral to consumer credit counseling A credit access business shall provide a form, to be prescribed by the director, to each consumer seeking assistance in obtaining an extension of consumer credit which references non-profit agencies that provide financial education and training programs and agencies with cash assistance programs. The form will also contain information regarding extensions of consumer credit, and must include the information required by 18-170(a)(1)- (5) of this ordinance specific to the loan agreement with the consumer. If the director has prescribed a form in the consumer's language of preference, the form must be provided in the consumer's language of preference. Secs. 18-174-18-185 Reserved SECTION 3. CUMULATIVE CLAUSE. This Ordinance shall be cumulative of all provisions of the City Code and other ordinances of the City of Euless, Texas, except where the provisions of this ordinance are in direct conflict with the provisions of other ordinances, in which event the conflicting provisions of the other ordinances are hereby repealed. Ordinance No. 2137, Page 8 of 10 SECTION 4. PENALTY FOR VIOLATION. Any person violating any of the provisions of this ordinance shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined in a sum not to exceed Five Hundred Dollars ($500.00) and a separate offense shall be deemed committed upon each day during or on which a violation occurs or continues. SECTION 5. SAVINGS CLAUSE. All rights and remedies of the City of Euless are expressly saved as to any and all violations of the provisions of the City Code or any other ordinances regulating credit access businesses that have accrued at the time of the effective date of this ordinance; and, as to such accrued violations and all pending litigation, both civil and criminal, whether pending in court or not, under such ordinances, same shall not be affected by this ordinance but may be prosecuted SECTION 6. SEVERABILITY CLAUSE. That it is hereby declared to be the intention of the City Council that the sections, paragraphs, sentences, clauses, and phrases of this ordinance are severable, and if any phrase, clause, sentence, paragraph, or section of this ordinance shall be declared invalid or unconstitutional by the valid judgment or decree of any court of competent jurisdiction, such invalidity or unconstitutionality shall not affect any of the remaining phrases, clauses, sentences, paragraphs, and sections of this ordinance, since the same would have been enacted by the City Council without the incorporation in this ordinance of any such invalid or unconstitutional phrase, clause, sentence, paragraph, or section. SECTION 7. PUBLICATION CLAUSE. The City Secretary of the City of Euless is hereby directed to publish the caption, penalty clause and effective date of this ordinance in the official newspaper of the City of Euless, as required by Section 12 of Article II of the Charter of the City of Euless. SECTION 8. EFFECTIVE DATE. This ordinance shall become effective and shall be in full force and effect beginning January 1, 2017. Ordinance No. 2137, Page 9 of 10 PRESENTED AND PASSED ON FIRST AND FINAL READING at a regular meeting of the Euless City Council on September 27, 2016 by a vote of 7 ayes, 0 nays, and o abstentions. APPROVED: Linda Martin, Mayor ATTEST: Kim tter, TRMC, City Secretary APPROVED AS TO FORM: 1 Wayne K. Olson, City Attorney Ordinance No. 2137, Page 10 of 10