Houston Politics & Policy

As a member of the Texas House of Representatives, Houston Republican Gary Elkins helps make laws. As a businessman, he is an owner of a chain of payday lending stores accused of breaking them.

Elkins opposed payday lending regulations during the 2011 and 2013 legislative sessions, arguing members should defer to his expertise and calling the bills a solution in search of a problem. Efforts at comprehensive statewide reform failed, leading Texas' three largest cities to adopt their own restrictions on the products payday and auto title lenders can offer.

As the local ordinances have come into force, first in Dallas, then San Antonio and, as of this summer, Houston, Elkins' Power Finance locations or store employees in all three cities have received citations, accused of ignoring the law by not registering with the cities or allowing regulators to inspect their books.

Elkins' interests in San Antonio were among the plaintiffs who sued the city of San Antonio over its payday regulations; the case was dismissed last February. The same attorney who represented the lenders in that case, John Dwyre of San Antonio, directed Houston officials in a Sept. 10 letter obtained by the Houston Chronicle not to speak with, ask for identification or request records from Power Finance employees.

Having been blocked from enforcing the ordinance at the firm's locations, Mayor Annise Parker said, Houston officials now plan to cite Power Finance as a company for failing to comply.

"The city of Houston has worked successfully with Rep. Elkins in other areas, but the fact that he would deliberately flout our local ordinances is not just unfortunate - it sends the wrong signal," Parker said. "We all understand that the reason that our system of laws works is that people of goodwill voluntarily comply with the law. It undermines the entire system when a public official chooses not to comply with a legally passed law or ordinance."

Elkins did not return calls seeking comment, but his Linked-In profile touts his role in developing the payday lending industry nationally and in Texas, noting that he has "pioneered two industries that became billion-dollar industries." Under the "specialties" heading of his profile, Elkins writes, "I am very good at figuring out ways around obstacle's(sic) in business."

City regulators did gain entry to one of Power Finance's three Houston stores, and cited an employee there for failing to register with the city and failing to display a permit. Reached by phone last week, staff deferred comment to attorney Dwyre, who said he would comment only if he was told who had informed the Houston Chronicle of the letter he wrote to city officials.

Accusations of victimizing

Payday lending regulations, Parker and the other cities' leaders say, are necessary to prevent borrowers who lack the funds or credit to get loans any other way from being victimized by predatory lenders who trap them in a cycle of debt by charging high interest rates and fees to repeatedly roll over loans the borrowers are unable to pay off. The industry offers small, short-term loans that avoid legal caps on fees and interest that apply to mainstream lenders, such as banks. Auto title loans are similar, but are secured by the borrower's vehicle, leaving the car at risk of repossession. Critics say the practice of rolling over loans can result in fees and interest that push the effective interest rate to several hundred percent.

In the 10-county Houston region, home to a fourth of the state's 3,240 such lenders, 2012 data show borrowers refinance more and pay on time less than state averages and that more than 100 auto title borrowers have their cars repossessed each week.

Houston's ordinance mirrors those passed in other cities, limiting payday loans to 20 percent of a borrower's gross monthly income and auto title loans to 3 percent of the borrower's gross annual income or 70 percent of the car's value, whichever is less. Single-payment payday loans may be refinanced no more than three times, and installment loans may include no more than four payments. The principal owed must drop by at least 25 percent with each installment or refinancing.

Power Finance's website lists 11 stores in Texas, three of which fall under Houston's ordinance: one in Greenspoint, one in the Northshore area, and the location in southwest Houston at which an employee was cited. The two Power Finance locations in Bellaire, inside Houston city limits, have not been cited, said ChaVonne Sampson, the city's Development Services manager.

Dallas' lone Power Finance store in January was issued four citations, three for allegedly violating zoning rules for payday lenders, and one for failing to register with the city. The cases are set for trial next month, said Assistant City Attorney Maureen Milligan.

"Here you have a lawmaker that makes law for everybody else, and then when it comes time for him to follow the law that other people follow, he thumbs his nose at it," said Dallas City Councilman Jerry Allen, who has championed that city's regulations. "We're not going to tolerate it. "

Stores across the state

Employees of both Power Finance locations in San Antonio have been cited for failing to register with the city and for barring city officials from inspecting their books, said Assistant City Attorney Jim Kopp; that case is set for trial next month.

Power Finance also has stores in El Paso and Arlington. The former has a payday lending ordinance but is not enforcing it, and the latter does not regulate payday lenders, according to employees of each city.

Lara Cottingham, spokeswoman for the Houston's Administration and Regulatory Affairs department, said that, Elkins' stores aside, the city has issued four citations to other lenders.

Kopp, the assistant San Antonio city attorney, said 11 citations have been issued to seven individuals there. He said 96 percent of all payday and title lenders that were registered with the state signed up with the city. Of Power Finance, Kopp said, "I'm, quite frankly, a little surprised, because registration is the easiest part of it. You pay $50 a year and you're done."

Parker stressed the same point, noting that 90 percent of Houston's 374 known lenders quickly registered under the ordinance.

"The ones that did not come into immediate compliance, most of them have closed or moved," she said. "Only those owned by Power Finance seem to be deliberately trying to block enforcement of our ordinance."

Representatives of the Consumer Service Alliance of Texas, an industry group, have said most stores in the regulated cities remain open, but the group predicts the stores will operate at lower profit margins, that some will close and that employees will be laid off.