Arlington is joining a growing number of cities trying to regulate payday lenders, which offer short-term loans and other cash services.
There are now more than 70 of the businesses in city limits and Arlington leaders say they're largely unregulated – which is why they felt it was time to set some standards.
"This is an issue our citizens have wanted addressed for years," said Arlington City Councilman Robert Rivera, who pushed for new rules. "Now is the right time after taking a look at best practices across the country, across the state to better protect our citizens."
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On Tuesday night, the Arlington City Council voted 8-0 in favor of new rules for payday lenders and auto title lenders. There will be a second and final vote during its next meeting.
The proposals include:
- Limiting loans to 20 percent of gross monthly income.
- Limiting auto title loans to the lesser of three percent of gross annual income or 70 percent of retail car value.
- Limiting repayment to four installments with repaying at least 25 percent of the principal.
- Prohibiting renewals or refinancing of installment-payment loans.
- City registration.
- Maintaining loan records for a minimum of three years.
- Violation or infractions fined up to $500 each.
- If consumer is non-English speaker, loan agreements must be translated into language of preference.
- Providing customers with a list of non-profit groups that offer consumer credit counseling.
"We can't regulate our way into better financial practices by our residents," said Rivera. "But with this ordinance, with the combination of financial empowerment education, we can better assist our people to make wiser decisions."
Local credit counseling service Transformance said it's a step in the right direction.
"Normally when people come to us they're in a crisis situation," said Ken Goodgames, president and CEO of Transformance. "What we try to provide are opportunities to prevent the situation from ever happening."
Transformance works daily with people who get themselves into trouble taking out pay day loans, which tend to have high interest rates.
Goodgames said most of them see payday lenders as quick, convenient cash – but then don't have a budget plan in place to pay back the money.
"Many times, they'll miss a payment," said Goodgames. "If they miss a payment, then all of a sudden they have to refinance the loan. Then they have higher interest rates, higher minimum payments that are required – so it ends up creating some type of a cycle for them that it's really, really difficult to get out of."
He said if you find yourself in a bind and need to take out a loan, you should shop around for the lowest possible interest rate and find a payment plan that fits your budget. That way, you can pay off the loan on time and avoid costly penalties.
He adds that community banks and credit unions are good places to start.