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Dallas Challenges Payday Lenders Head On

DALLAS (CN) - Dallas fired another salvo in its years-long battle against the payday lending industry, announcing its support for an alternative, nonprofit community lender.

City Council member Jerry Allen, a former banker, said he hopes the initiative will "end the cycle of debt" for borrowers.

Payday lenders are heavily criticized for charging excessive, usurious rates and fees of as high as 400 percent from the poorest borrowers.

"I've heard it over and over again from payday and auto title companies: 'Who else will lend to these poor people? That is why we have to charge 400 to 500 percent,'" Allen said at a news conference Wednesday announcing the plan.

"Guess what? We just came up with an alternative."

Known as the Community Loan Center of Dallas, the lender will allow employees of enrolled employers to apply online for one-year loans of up to $1,000, with no credit checks or collateral required.

Risk of default is reduced because loan payments will be deducted directly from borrowers' paychecks. Allen said the city is joining the Community Loan Center of Dallas (CLCD) as an employer, making its 13,000 employees eligible for the loans.

"The proliferation of payday and auto title lenders proves there is a demand for short-term loans that are easily accessible, and the purpose of the small dollar loan program is to provide ready access to affordable credit while helping to create long-term financial stability," the CLCD website states.

"Borrowers are also able to take advantage of free financial counseling to help build their assets and lay the groundwork for long-term financial success."

Allen said CLCD borrowers are "hard working people" who "must be employed" to be eligible for a loan.

"If we can keep more of money in their pockets and they're helping their families and their kids, how is that not a win-win for everybody?" Allen asked.

CLCD will work with Community Loan Center of Texas, which has partnered with local nonprofits in Austin, Houston, Laredo, Brownsville and Bryan/College Station to launch similar lenders.

The group says its pilot program in Brownsville has been successful and self supporting, with $3 million in loans disbursed.

"In the first two years of operation, the CLC of the Rio Grande Valley made 2,000 loans with a 5 percent loss rate," CLCT says on its website.

Allen said CLCD has $250,000 in funds, and hopes donors can beef that up into the millions within one year.

In May, the 5th District Court of Appeals in Dallas affirmed the dismissal of a lawsuit by payday and title lenders against the city's ordinances targeting the industry.

Dallas requires the lenders to register with the state every year, to adhere to recordkeeping and inspection requirements, and to restrict extensions of consumer credit. It imposes penalties of up to $500 for each day of violations deemed to be a separate offense.

The city said the restrictions seek "to reduce abusive and predatory lending practices ."

Two months later, federal regulators ordered Irving, Texas-based ACE Cash Express to pay $10 million in refunds and fines for illegal collection tactics. The Consumer Financial Protection Bureau accused ACE of making false threats of civil lawsuits and criminal prosecutions against borrowers .

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