29 - Credit Access BusinessNo. 29
M�niorandum
TO: Mayor, Mayor Pro Tem & City Council
FROM: Grayson Path, City Manager
Stephanie Harris, City Attorney
Rob Vine, Assistant City Manager
SUBJECT: Credit Access Business Ordinance
DATE: November 14, 2022
BACKGROUND:
At the October 10, 2022 City Council Meeting, the City Council heard presentations from Texas
Appleseed and United Way regarding Credit Access Businesses (CAB) (aka Pay Day Loans) and
the abusive and predatory lending practices that often occurs with the services they provide to
members of our community who are in financial straits. From this presentation, the City Council
requested that an ordinance regulating these services be produced and brought back to them for
consideration.
STATUS OF ISSUE:
Working with Texas Appleseed, City Staff obtained a copy of a CAB Ordinance produced by the
Texas Municipal League nearly ten years ago. In addition, City Staff obtained a copy of the
recently approved City of Reno ordinance. The City of Reno Ordinance mirrors that of the City
of Austin (and we understand the City of Dallas). This version is currently under litigation. The
TML version however has already been litigated over the past ten years. While this is not a
guarantee that litigation may still not occur, we can at least be rest assured that this ordinance has
already been tested in court. Should the Austin version survive litigation, the City of Paris could
always re-examine it, seeking amendments to whatever we have in existence at the time.
Mayor Paula Portugal, Mayor Pro Tem Reginald Hughes, City Manager Grayson Path, City
Attorney Stephanie Harris, and Assistant City Manager Rob Vine met to review the draft TML
Ordinance. After making a few slight modifications based on versions approved by other
municipalities, we have ready tonight a version we recommend for approval. However, given this
ordinance would be adding new regulations to existing businesses, we do not recommend approval
tonight, but rather we recommend that the City Council agree to the language by consensus (or
direct specific edits) and authorize City Staff to issue a public hearing notice for December 12,
2022. In the meantime, City Staff will issue notice to the existing known CABs in Paris and invite
them to attend and offer thoughts at the 12/12/22 Council Meeting Public Hearing. At that time,
the City Council can either approve as written, approve with edits, or request City Staff to do
further investigation based on the information shared in the Public Hearing.
The following is meant to serve as a summary of this ordinance.
1. Section 5.12.001 — Title of Article — "Credit Access Businesses" and purpose for article.
2. Section 5.12.002 — Definitions — With references to State of Texas Finance Code.
3. Section 5.12.003 — Penalties for violating ordinance - $500/offense/day and subject to
revocation of certificate of registration. Does not apply to the consumer, the client of the
CAB.
4. Section 5.12.004 — Defenses
5. Section 5.12.005 — 5.12.007 — Regulation #1 — Registration required to serve as a CAB in
the City of Paris. Basic application information required (name, address, state license,
etc.). Must display license at location.
6. Section 5.12.008 — Appeal — Should their registration be revoked or denied, City Council
shall hear their appeal, if made, at the next available Council Meeting. Given the City
Manager, or designee, is the Director, recommended that it be an entity above the City
Manager.
7. Section 5.12.009 — Certificate expires after one year, must renew. Ordinance takes effect
April 1, 2023.
8. Section 5.12.010 — Certificate is non -transferable.
9. Section 5.12.011 — Regulation #2 — Must maintain basic information and records, for three
years, on all credit transactions. This information is necessary in order to investigate
violations of the ordinance.
10. Section 5.12.012 — Regulation #3 — Extensions of credit are limited to the following:
a. 20% of consumer's gross monthly income.
b. For Motor Vehicle — 3% of consumer's gross annual income or 70% of vehicle
retail value.
c. When repayment is designed using installments, limit of four (4) payment
installments, each of which pays at least 25% of principal.
d. When repayment is designed as lump sum, limit of three (3) renewals or
refinancing, each of which must pay at least 25% of principal.
11. Section 5.12.013 — Regulation 44 — All consumers must understand the agreement they are
signing with the CAB, thus a language requirement.
12. Section 5.12.014 — Regulation #5 — All consumers must be provided a sheet with financial
counseling options.
From speaking with other communities, CABs have generally complied as they have found the
above information to be within their ability to do and still operate. This ordinance does not prohibit
anyone from using the services of a CAB. It also does not place any additional zoning restrictions.
This ordinance is primarily complaint -driven due to limits in our enforcement and auditing
resources, therefore enforcement will primarily occur when cause is known and/or given. It
however does not preclude us from taking initiative action to audit and inspect from time to time
as resources allow. This ordinance gives consumers protection should they choose to pursue
violations of the ordinance made against them during these transactions by bringing them to our
attention.
BUDGET:
There will be a reasonable registration fee attached to this ordinance in order to cover
administrative review costs for issuing a certificate of registration.
RECOMMENDATION:
1. Agree to the language of the draft ordinance as written and request a public hearing be held
on December 12, 2022.
2. Request edits to the language of the draft ordinance.
3. Approve the ordinance tonight without a public hearing on December 12, 2022.
4. Reject the ordinance and either request different language or do not proceed with regulating
CABs.
ADDITIONAL THOUGHTS:
1. Agree to the language of the draft ordinance as written and request a public hearing be held
on December 12, 2022.
ORDINANCE NO.
AN ORDINANCE OF THE CITY OF PARIS, TEXAS SETTING
FORTH REGISTRATION REQUIRMENTS AND CREDIT
EXTENSION GUIDELINES FOR CREDIT ACCESS BUSINESSES
BY ADDING ARTICLE 5.12, "CREDIT ACCESS BUSINESSES," TO
CHAPTER 5, "BUSINESS REGULATIONS," OF THE CITY OF
PARIS CODE OF ORDINANCES; MAKING OTHER FINDINGS
RELATED TO THE SAME; PROVIDING A REPEALER CLAUSE, A
SEVERABILITY CLAUSE, A PENALTY CLAUSE AND PROVIDING
AN EFFECTIVE DATE
WHEREAS, certain credit access businesses engage in abusive and predatory
lending practices, offering easy money with onerous terms and fees to those members of
our community who are in financial straits; 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, in the case of motor vehicle title loans, such arrangements often lead
to the loss of borrowers' primary assets, their automobiles, which they require in order to
get back and forth to work; and
WHEREAS, the City Council finds that the terms of this ordinance strike a
reasonable balance between the rights of the credit access industry to operate and prosper
and providing some minimal consumer protections and that itis in the best interest of the
citizens of the city to adopt same;
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY
OF PARIS, TEXAS:
Section 1. That Chapter 5, "Business Regulations," of the City of Paris Code of
Ordinances be amended to add a new Article 5.12, "Credit Access Businesses," to read as
follows:
Article 5.12 CREDIT ACCESS BUSINESSES
5.12.001 Short Title and Purpose.
(a) This article may be known and cited as "Credit Access Businesses."
(b) The purpose of this article is to protect the welfare of the citizens of the City of Paris,
Texas 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.
5.12.002 Definitions.
As used in this chapter:
(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.
(5) DEFERRED PRESENTMENT TRANSACTION has the meaning given that term
in Section 393.601 of the Texas Finance Code.
(6) DIRECTOR means the City Manager, or City Manager's Designee, to enforce and
administer this chapter.
(7) EXTENSION OF CONSUMER CREDIT has the meaning given that term in
Section 393.001 of the Texas Finance Code.
(8) MOTOR VEHICLE TITLE LOAN has the meaning given that term in Section
393.601 of the Texas Finance Code.
(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 chapter and includes all owners and operators of the
credit access business identified in the registration application filed under this
chapter.
(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.
5.12.003 Violations; Penalty
(a) A person, other than a Consumer, who violates a provision of this chapter, or who fails
to perform an act required of the person by this chapter, commits an offense. A person,
other than a Consumer, 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 chapter 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.
(e) A registrant who violates any provision of this chapter is subject to denial of issuance,
renewal, or revocation of a certificate of registration.
5.12.004 Defenses
It is a 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.
5.12.005 Registration Required
A person commits an offense if the person acts, operates, or conducts business as a credit
access business without a valid certificate of registration. A certificate of registration is
required for each physically separate credit access business.
5.12.006 Registration Application
(a) To obtain a certificate of registration for a credit access business, a person must submit an
annual application on a form provided for that purpose to the director by April l" of each year.
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,
and telephone number of the credit access business.
(3) The names, street addresses, mailing addresses, email addresses, and telephone
numbers of the on-site manager, the registered agent for service, and owners of 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 City of Paris Code of Ordinances.
(6) A non-refundable application fee for the amount established.
(b) An applicant or registrant shall notify the director within 45 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 and any change in the status of the state
license held by the applicant or registrant.
5.12.007 Issuance and Display of Certificate of Registration; Presentment upon
Request.
(a) The director shall issue to the applicant a certificate of registration upon receiving a
completed application under Section 5.12.006
(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.
5.12.008 Appeal from Denial or Revocation of Certificate of Registration.
Upon denial of issuance or renewal or revocation of a credit access business certificate of
registration by the City of Paris, the credit access business owner or operator may appeal
the decision to the City Council.
(1) The notice of appeal must be in writing, fully briefing the appellant's position
and filed with the City Clerk's Office within ten (10) business days of the receipt
of the notice of denial.
(2) The notice of denial or revocation is deemed received and in receipt of the owner
or operator of the credit access business on the third day after mailing by the City
by certified mail.
(3) The City Council, after a public hearing on the appeal, may determine from the
notice of appeal and submissions from the Director and testimony taken at the
public hearing whether the denial or revocation should be upheld or overturned and
the certificate of registration issued. The public hearing shall take place at the next
regular meeting of the City Council after the expiration of at least five business
days following the City Clerk's receipt of the notice of appeal.
5.12.009 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 5.12.006 by April 1St of each year. A registrant shall apply for renewal at least 30
days before the expiration of existing certificate of registration.
5.12.010 Non -transferability.
A certificate of registration for a credit access business is not transferable.
5.12.011 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, whether an original
transaction or refinancing or renewal of an extension of consumer credit, 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; and
(5) The documentation used to establish a consumer's income under Section 5.12.012 of
this ordinance.
(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 and made available for inspection by the city upon request
during the usual and customary business hours of the credit access business.
5.12.012 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 20 percent 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 of the consumer's gross annual income; or
(2) 70 percent of the 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 25 percent of the principal amount of the extension of consumer credit. An extension
of consumer credit that provides for repayment in installments may 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 times. Proceeds from each refinancing or renewal
must be used to repay at least 25 percent of the principal amount of the original extension of
consumer credit.
(f) For purposes of this section, an extension of consumer credit that is made to a consumer
within seven days after a previous extension of consumer credit has been paid by the consumer
will constitute a refinancing or renewal.
5.12.013 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.
5.12.014 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 5.12.011(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.
Section 2. That all provisions of the ordinances of the City of Paris, Texas in
conflict with the provisions of this ordinance are hereby repealed, and all other provisions
of the ordinances of the City of Paris, Texas not in conflict with the provisions of this
ordinance shall remain in full force and effect.
Section 3. That the repeal of any ordinance or part of ordinances affected by the
enactment of this ordinance shall not be construed as abandoning any action now pending
under or by virtue of such ordinance or as discontinuing, abating, modifying, or altering
any penalty accruing or to accrue, or as affecting any rights of the municipality under any
section or provisions of any ordinance at the time of passage of this ordinance.
Section 4. That this ordinance shall become effective from and after its passage
and publication as required by law.
ADOPTED THIS day of _ 2022.
Paula Portugal, Mayor
ATTEST:
Janice Ellis, City Clerk
APPROVED AS TO FORM:
Stephanie H. Harris, City Attorney