Lawsuit Filed Over Dallas Payday, Title Loan Rules

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    Jason Comely/Flickr

    A trade group representing payday and car title loan stores filed a lawsuit Friday to block regulations approved by the city of Dallas in June.

    The Consumer Service Alliance of Texas claims the city rules violate state law and improperly restrict loan choices that should remain available to customers.

    "We have no other option but to sue the city of Dallas to protect the interests of North Texas consumers who are best served when they are given a variety of realistic credit options and trusted to make financial decisions based on what's best for them and their families," CSAT President Alex Vaughn said in a press release.

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    Dallas city leaders added tough new rules Wednesday for Pay Day and Title Loan stores.

    The Dallas City Council approved the rules June 22 after the Texas Legislature decided against statewide restrictions on the high interest and fees the stores charge.

    "They chose to take a very limited action, and we chose to do the most we can at our city level," Councilman Jerry Allen said when the city rules were approved.

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    A war is brewing in Texas against the explosion of payday and title loan stores, which now outnumber McDonald's and Whataburger chains combined. Critics say they charge staggering interest rates under a loop hole in the law.

    Allen, a former banker, testified in favor of stronger payday loan regulations at hearings on the proposed state law in Austin this year.

    When drafting the Dallas ordinance, city lawyers decided restrictions on the amount of interest rates and fees could only be determined by the state.

    But Dallas did require lenders to set up payment plans that actually reduce the principal amount of the loan and not just roll over fees.

    And the city rules also require registration and record-keeping on borrowers and lenders, which is similar to rules state lawmakers chose to impose statewide.

    "This new, egregious Dallas ordinance conflicts with current law because it duplicates financial data collection requirements, limits access to credit for Dallas customers and restricts the terms under which loans may be repaid," Vaughn said.

    City officials could not be reached for comment late Friday, but Allen said in June that he expected a legal challenge and that the city's measure would survive.

    "This is as strong a teeth that we can put into this, and it sends a message that we will not tolerate our citizens being taken advantage of," he said.

    More: CSAT's lawsuit